European Border Mechanism: Impacts

The entry into force of the European Union’s Carbon Border Adjustment Mechanism (CBAM) represents a profound transformation in international trade and the costs associated with exports from carbon-intensive sectors. For third countries such as Brazil, which exports approximately €19-20 billion worth of goods subject to this mechanism – sectors such as oil and gas, cement, aluminium, pesticides and others – the economic and regulatory impact will be significant.

The CBAM requires exporters to cover the cost of carbon embedded in their products, seeking to avoid “carbon leakage” to markets with less stringent regulations. This new reality forces Brazilian economic agents to reassess their strategies to remain competitive in the European market, since emissions generate high direct and indirect costs.

Three Paths to Compensation and Their Relative Costs

1. Compensation in the country of origin (third country): This is an option that many agents are looking to explore, given that the cost of carbon credits in Brazil, for example, is around BRL 60 per tonne (around €11 to €12). Opting for locally certified offsetting mechanisms, when recognised by the European mechanism, can represent a substantial competitive advantage, reducing direct costs compared to European market prices. However, this route requires in-depth technical and regulatory expertise to ensure that credits are valid and accepted within the scope of the CBAM, while preserving strict compliance with the regulation.
2. Penalties and fees provided for in the border mechanism: If compensation is not carried out or certified properly, the exporter will be subject to paying additional fees and fines provided for by the European regulation. These costs can be significantly higher, heavily penalizing exporters and impacting their profit margin. Exposure to the risk of penalties represents financial and commercial uncertainty that can jeopardize contracts and commercial relations with the European Union.
3. Purchasing credits on the European regulated market: The alternative of purchasing credits on the European regulated market, where the price per tonne currently varies between €70 and €80, involves a higher cost, but guarantees full and immediate compliance with the CBAM criteria. This price, moreover, must follow the evolution of the European regulated market and will always be very close to, if not exactly the same as, the cost generated by the border mechanism, due to its nature as a reference price.

Consequences for the Brazilian Economy and Exporting Industries

For Brazilian exporters that handle around €20 billion in CBAM-susceptible products, strategic decisions on how to offset emissions will determine future competitiveness in the European market. Efficient offsetting that is recognised at source can result in significant economic gains, mitigating negative impacts on profitability and preserving access to premium markets.

At the same time, strict compliance with the mechanism’s requirements requires technical and regulatory expertise, as simple reporting compliance is not enough — effective compensation must be proven to avoid sanctions and additional costs.

This scenario highlights the urgent need to deepen expertise in carbon markets, environmental compliance and integrated mitigation strategies. Consultants and experts with practical experience at the interface between European regulations and third-country markets will play a crucial role in developing solutions that reconcile competitiveness, sustainability and compliance.

The Value of Applied Knowledge and the Future of Exports

The European regulated market establishes a clear level for carbon pricing, which will serve as the basis for the border mechanism. Consequently, price fluctuations and the evolution of European climate policy will have a direct impact on the costs of global production chains. Understanding these dynamics is vital so that exporters, especially from the most impacted industries, can anticipate risks, seize opportunities and design robust mitigation strategies.

In short, the CBAM is not just an environmental regulation, but a factor of global economic and competitive transformation. Given its position and size in trade with the European Union, Brazil must be prepared to act with technical and strategic depth, ensuring that carbon offsetting is an instrument of valorization and not an unsustainable additional cost.