EU CBAM hits the ground running then trips over fertilizer exemption

The EU Carbon Border Adjustment Mechanism made a strong debut with 10,483 import declarations recorded in its first week,the European Commission said Jan. 14, but Brussels' suggestion that it might exempt fertilizers has paralyzed trading activity, raising questions about the mechanism's stability.

The EU's CBAM covered imports of 1.66 million metric tons of carbon-intensive goods in its first operational week, with 4,100 economic operators successfully obtaining CBAM authorized declarant status, the EC said.

Iron and steel dominated early CBAM flows at 1.62 million mt, representing 98% of total covered volumes and highlighting the sector's exposure to this carbon policy. This reflects both the industry's carbon intensity and Europe's reliance on imported steel.

Aluminum, fertilizers, and cement accounted for minimal shares at 0.3%, 1.2%,and 0.5%, respectively, while there were no flows of electricity and hydrogen in the first week, according to EC data.

Turkey emerged as the leading source of CBAM-covered imports, followed by China, India, Canada, Taiwan, and Vietnam. Belgium recorded the highest declaration volumes among EU member states, followed by Spain, Romania, Netherlands, France, and Germany.

"The successful implementation of CBAM on 1 January 2026 demonstrates the EU's capacity to deploy complex climate policy instruments without hindering trade, while reinforcing transparency, fairness, and climate ambition across global supply chains," the commission said in a statement. "National authorities report stable processing times, supported by harmonized digital workflows."

Related content: The potential proliferation of CBAM: a fragmented carbon tariff landscape

Policy uncertainty

However, just one week into CBAM's definitive phase, the European Commission threw the market a curveball. Commissioner for trade and economic security Maroš Šefčovič said the EC might assess the feasibility of temporarily pulling fertilizers out of CBAM if there was evidence the policy was leading to significant inflationary pressure on food prices, after pressure from European farming ministers.

This announcement perplexed companies across all CBAM-covered sectors, leaving many questioning the sudden policy reversal. For fertilizer traders, the impact was immediate and dramatic, with several market participants telling Platts that the uncertainty had resulted in a "near-total freeze" in trading activity.

On Jan. 8, the EC released detailed guidance on Article 27a of the CBAM Regulation, which spells out how it could pull products out of the carbon border tax through a delegated act if including them causes "severe harm to the [EU] internal market due to serious and unforeseen circumstances related to the impact on the prices of goods."

The lead-up to CBAM's full implementation was far from smooth. The EC only released crucial information in mid-December -- just days before the policy started. This included default emission values, CBAM benchmarks and methods for calculating emissions.

The timing caught importers around the world off guard. Companies scrambled to estimate compliance costs and evaluate how CBAM might disrupt their supply chains and long-established trading partnerships.

Trade impact

Analysts at S&P Global Energy Horizons said it was still too early to see the impact of the recent CBAM developments on trade flows.

"Seaborne trade data did not show strong evidence of front-loading to avoid CBAM costs," they said in a Jan. 14 note. "EU steel and fertilizer imports dropped in week one but appeared to recover in week two of 2026."

The impact of CBAM on trade flows is expected to grow as CBAM costs phase in over time, reaching full implementation in 2034.

The EU's CBAM transitioned to its definitive phase from Jan. 1, marking the world's first operational carbon border tax. Importers of carbon-intensive goods from six sectors -- aluminum, cement, electricity, fertilizers, iron and steel, and hydrogen -- now face financial liability for their products' embedded emissions and must purchase CBAM certificates reflecting the carbon content of their imports.