Media

For businesses, the EU’s CBAM is increasing compliance burdens and financial obligation, but it is also opening green tech and supply-chain opportunities. 

• In January 2026, the EU’s Carbon Border Adjustment Mechanism (CBAM) moved from a transitional carbon reporting regime to enforcement with real financial and compliance consequences for exporters.  

• As free allowances under the EU Emissions Trading System (ETS) are phased out, importers will be required to purchase CBAM certificates based on verified embedded emissions, effectively putting a tax on carbon at the EU border.  

• Asian markets face disproportionate exposure as they work to build credible emissions data monitoring, recording, and verification (MRV) systems and accelerate industrial decarbonization. Regulatory fragmentation will persist as advanced markets move toward EU-aligned carbon pricing while others lag due to political, administrative, and energy‑system constraints, raising compliance complexity for multinationals operating across Asia. 

What Businesses Should Watch: Four Structural Shifts, Five Tactical Issues

Indo-Pacific markets will continue adjusting to CBAM’s full implementation, but the pace and depth of adaptation will vary widely. Four structural forces will shape the region’s trajectory: 

• Industrial competitiveness pressures will intensify. Producers with high emissions intensity and limited access to clean energy will face rising cost pressures as CBAM certificate prices increase. The competitiveness gap will widen for markets without credible carbon pricing regimes or limited access to clean energy. Firms that fail to invest in decarbonization risk losing EU market share or facing rising cost pass‑throughs as CBAM certificate prices increase. 

• Geopolitical positioning will influence policy responses. Governments are navigating a tension between CBAM’s perception and role as a tool for protectionism as well as leverage to accelerate domestic decarbonization. Diplomacy will likely ramp up as financial obligations begin in earnest.  

• Supply‑chain restructuring will accelerate as companies reassess production footprints, diversify sourcing, and invest in lower‑carbon facilities. Markets with credible carbon‑pricing regimes and cleaner power mixes will attract new manufacturing and green‑tech investment. 

• Regulatory fragmentation will persist as advanced markets (Japan, South Korea, Singapore, and possibly Australia) move toward EU‑aligned carbon‑pricing systems while others lag due to political, administrative, and/or energy‑system constraints. This divergence will increase compliance complexity for multinationals operating across Asia. 

Businesses should watch for five immediate issues that will directly impact operations, finance, supply chains, competitiveness, and profits. These include:  

• Compliance and Reporting: More rigorous emissions-tracking and verification will be required. Supplier readiness and data quality will become critical differentiators. Companies with digital MRV systems and third-party verification will be best positioned. 

• Supply-Chain Risk: Exposure to high‑emissions suppliers will become a material competitiveness issue. Firms may need to diversify sourcing, co‑invest in decarbonization, and/or shift production to lower‑emissions jurisdictions.  

• Investment Opportunities: Demand for green‑tech solutions is rising, especially renewable energy, hydrogen, CCUS, and digital MRV tools. Companies should monitor evolving national programs, especially in markets building ETS frameworks. 

• Government Incentives: Subsidies, tax incentives, and financing mechanisms across the Indo-Pacific will help offset transition costs. Japan, South Korea, and Singapore offer the strongest incentives, with others beginning to follow. 

• Future Sector Expansion: The EU may expand CBAM to additional sectors, including chemicals and critical minerals. Firms in these industries should begin scenario planning and emissions data preparation now. 

Market-Specific Analysis 

CHINA: WHERE PUBLIC CRITICISM AND INTERNAL ADJUSTMENT COEXIST 

China is Asia’s largest exporter of CBAM‑covered goods to the EU, with an estimated USD 7.2 billion in Chinese exports directly exposed to CBAM compliance costs under the mechanism’s initial scope. Should CBAM expandcoverage to all imports, from China to the EU, this could render up to USD 35 billion in goods exposed, giving it the most significant compliance risk. Beijing continues to publicly criticize CBAM as a unilateral protectionist measure, even as it accelerates efforts to strengthen its national ETS and expand coverage to industrial sectors. Notably, it frames these moves as serving China’s dual‑carbon goals rather than complying with foreign regulations. Chinese steel, aluminum, and cement producers — many of which rely heavily on coal‑fired power and emissions‑intensive processes — are among the most exposed to CBAM‑related cost increases on EU‑bound shipments. 

Status of Domestic Response Measures: 

• As part of its dual-carbon goals, China will continue to make internal adjustments that reduce CBAM exposure, such as expanding the national ETS beyond the power sector to encourage industrial decarbonization. 

• Central ministries and provincial governments are issuing guidance on developing carbon footprint record systems. 

• Industry associations are urging members to strengthen emissions monitoring, reporting, and verification systems, though government capacity and centralized guidance is still lacking. 

• Diplomatic engagement with Brussels continues, but Beijing is unlikely to secure exemptions. 

INDIA: NAVIGATING CBAM WITHOUT CARVE-OUTS 

India is the second-largest Indo-Pacific exporter of CBAM-covered goods and has been one of the most vocal critics of the mechanism on equity grounds. Accordingly, New Delhi is seeking operational flexibility within the 2026 India-EU Free-Trade Agreement (FTA) framework — including recognition of its domestic carbon-mitigation measures, energy taxes, and upcoming carbon market framework as partial offsets. 

While the FTA covers extensive tariff reductions, CBAM remains fully applicable to carbon-intensive sectors like steel, aluminum, and cement, with no special treatment for India. These heavily exposed sectors could face near-term cost pressures even as trade negotiations aim to smooth the adjustment process. 

Status of Domestic Response Measures: 

India established initial legal basis for its domestic carbon market in 2023 through its Carbon Credit Trading Scheme. The framework created a compliance market covering roughly 490 large industrial facilities across seven energy‑intensive sectors. These entities are assigned greenhouse gas emission‑intensity targets by the Bureau of Energy Efficiency, with firms that exceed their targets earning Carbon Credit Certificates and those that fall short required to buy certificates from the market. 

• On March 23, 2026, Government of India announced the launch of the Indian Carbon Market Portal, a new central platform for the implementation and administration of the Carbon Credit Trading Scheme (CCTS), handling registration MRV of carbon emissions across all participating industries set to begin by midyear 2026.  

• Indian steel and aluminum producers are evaluating decarbonization pathways (renewable integration, green hydrogen pilots, scrap-based production), and these efforts are increasingly shaped by government support — including subsidies and pilot funding under the National Green Hydrogen Mission, incentives for renewable energy procurement, and early stage backing for low 

carbon industrial technologies — which together signal the decarbonization routes New Delhi aims to scale. Diplomatic engagement with the EU is ongoing, with India seeking recognition of domestic mitigation measures and concessional steel quota arrangements, even as the EU continues to rule out formal CBAM exemptions. 

JAPAN: IN ALIGNMENT, WITH LIMITED EXPOSURE 

Japan is among the most advanced Indo-Pacific markets in carbon accounting and industrial decarbonization and views CBAM as broadly aligned with its own climate policy. Japan’s steel sector, one of the world’s largestand a major source of emissions, is a target of CBAM as well as domestic efforts to tax carbon-intensive products. However, CBAM’s impact is expected to be minimal for Japanese companies due to their limited exports to the EU market. In 2024, for example, Japan exported just 1.36 Mt of steel products to the EU, compared with around 22.7 Mt of steel exports to Asian countries, including India. 

Status of Domestic Response Measures: 

• As part of its Green Transformation (GX) program, Japan’s METI is taking deliberate steps to implement emissions-reporting rules and carbon pricing. 

• Starting April 1, 2026, Japan will implement a mandatory cap and trade system for companies emitting over 100,000 tons of CO₂ annually — a threshold that will bring approximately 300 to 400 major firms into the compliance regime, primarily in steel, power generation, chemicals, aviation, logistics, and other energy-intensive sectors. Noncompliance will result in fines. 

• In its latest GX implementation strategy updated in December 2025, Japan announced USD 1.34 billion (JPY 210 billion) in new subsidies to support capital investment for companies transitioning to decarbonized power. The FY2026 program prioritizes technologies such as onsite and offsite renewable energy procurement, high efficiency electrification systems, battery storage, and clean hydrogen ready equipment for large energy users like data centers and manufacturers. These measures are designed to bridge the cost gap for early adopters and complement the broader Climate Transition Bond framework. 

SOUTH KOREA: BALANCING BETWEEN ALIGNING POLICIES AND ENSURING COMPETITIVENESS 

CBAM will expose Korea’s carbon-intensive, export-focused industries such as semiconductors and petrochemicals to increased costs, particularly given the importance of the European market to these businesses. South Korea’s steel sector faces the most exposure to CBAM due to slow commercialization of low-carbon steelmaking technologies and the high cost of running electric furnaces. Seoul has been eager to support affected sectors via new policies and legislation, but industry players continue to urge more robust steps.  

South Korea features a mature carbon pricing scheme known as the Korea Emissions Trading System (K-ETS) and is taking steps to align its climate and industrial policies with CBAM. The gap between K‑ETS and European carbon prices will determine South Korean exporter exposure to CBAM costs. While the government is working to reduce compliance burdens by increasing domestic carbon prices — including recent tightening of emissions allocations for the 2026–2030 K‑ETS period and a higher paid‑allocation ratio for power generators — the current ratio of South Korean to EU prices remains roughly 1:10. The critical balancing act for Seoul will be aligning its forward‑leaning climate agenda with that of the European Union while maintaining competitiveness in international markets. 

Status of Domestic Response Measures: 

• Throughout 2025, the South Korean government held public-private briefings and meetings with EU decisionmakers to implement regulatory changes, promote transparency, and ensure South Korean businesses preparation for CBAM’s implementation.  

• The tightened emissions allocations for the 2026-2030 K-ETS period and increased paid allocation ratio for power generators from 10 to 50 percent by 2030 will likely push carbon credit prices closer to European levels. Since companies can reduce CBAM fees by proving compliance with K-ETS, more commensurate prices will help reduce CBAM liabilities.  

• The South Korean government incentives to accelerate the green transition — including expanded financing under the 2026 budget, targeted support from the USD 100 billion (KRW 150 trillion) National Growth Fund, and new funding streams tied to achieving the 2035 NDC, where industrial sector emissions reductions saw the largest upward revision — are expected to further mitigate CBAM related costs by supporting decarbonization investments in the most exposed sectors. 

• On November 27, 2025, the National Assembly passed the K-Steel Act, designed to transition the domestic steel industry into a low-carbon, high-value structure. Set to take effect in June, the Act provides support for low-carbon technology development and designation of specialized low-carbon steel zones. 

SOUTHEAST ASIA: DIVERSE EXPOSURE, DIVERSE RESPONSES 

CBAM creates many new opportunities for low-carbon manufacturing in Southeast Asia, despite its regulatory and cost burdens. Although the EU is ASEAN’s third largest trade partner, the region’s exposure to CBAM varies widely across markets. Singapore and the Philippines stand to be less affected than countries with carbon-intensive industries like Indonesia, Malaysia, Thailand, and Vietnam.  

While Singapore is well positioned due to its carbon pricing regime and advanced reporting systems, other markets — such as Indonesia, Thailand, and Vietnam — face significant challenges due to coal-heavy energy systems and limited emissions tracking capacity. CBAM’s impact on Malaysia and the Philippines is more limited but could accelerate opportunities arising from their embrace of clean energy and growing interest in promoting low-carbon manufacturing. 

Indonesia: The Coal Vulnerability  

Indonesia is the Southeast Asian economy most exposed to CBAM due to its coal-dependent industrial base and growing exports of steel, aluminum, and nickel to the EU, valued at USD 1.4 billion in 2022. The EU is Indonesia’sfifth largest export destination, covering 7.4 percent of its exports; approximately 6.2 percent of these will be subject to CBAM. 

Status of Domestic Response Measures: 

• The Indonesian government is developing a national carbon trading framework, set to begin operations by the end of June 2026. 

• In February 2023, Indonesia launched the Nilai Ekonomi Karbon — a mandatory ETS for coal-fired plants operated by the Indonesia Carbon Exchange — creating a compliance anchor and signaling regulatory commitment. 

• Voluntary carbon credit trading resumed in October 2025 after a four-year pause, and confidence in the market is growing, but these credits are not eligible to offset CBAM obligations. 

• Business readiness is mixed: large firms are beginning to invest in emissions measurement and cleaner production, but most are not yet aligned with EU carbon price benchmarks. State-owned enterprises are piloting emissions tracking systems. 

Malaysia: Limited Impact, Pragmatic Policy Shift 

Malaysia’s exposure to the EU’s Carbon Border Adjustment Mechanism (CBAM) will be relatively low in the initial phase. CBAM-covered sectors accounting for roughly 75 percent of exports from Malaysia to the EU, but only 8 percent of its total exports from 2021 to 2023; experts estimate that the initial phase could impact closer to 3.4 percent overall. Aluminum exports appear to be the most affected segment, alongside smaller volumes of cement, fertilizers, and hydrogen. The government has responded pragmatically by exploring policy tools to support industrial decarbonization. Malaysia has launched a voluntary carbon market through the Bursa Carbon Exchange and is considering a domestic emissions trading system, partly to prepare industry for CBAM and other emerging carbon-pricing regimes. 

Despite the domestic policy adjustments and structural responses, major challenges remain around industry’s readiness and administrative capacity. 

Status of Domestic Response Measures: 

• Malaysia’s Ministry of Environment and Water published national guidance for international voluntary carbon market mechanisms in 2021. The Bursa Carbon Exchange, Malaysia’s voluntary carbon market, was establishedin December 2022. 

• Malaysia is developing a domestic ETS with a cap-and-trade system, currently in the legislative stage under the proposed National Climate Change Bill, which will be tabled in Parliament in by mid-2026. 

• Large manufacturers are investing in renewable energy procurement and emissions tracking, but small and medium enterprises face capacity constraints. 

• The recent Cabinet reshuffle gives companies an opportunity to re-engage Malaysia’s pro-business policymakers, who are positioning themselves as offering viable solutions and creating new commercial opportunities. 

Thailand: Materially Exposed, Structurally Constrained 

Thailand faces material exposure as the EU’s CBAM enters its full implementation phase.  CBAM could affect an estimated 3.8 percent of Thailand’s exports to the EU, equivalent to around USD 896 million, with the steel and aluminum sectors most exposed. While export volumes are relatively modest in absolute terms, embedded carbon intensity and limited domestic carbon-pricing mechanisms heighten competitiveness risks. 

Status of Domestic Response Measures: 

• Thailand’s readiness to comply with the EU’s CBAM remains weak, driven primarily by regulatory and structural constraints. 

• The Climate Change Bill, essential for enabling a carbon tax, national ETS, and CBAM-aligned emissions tracking, was stalled after Thailand’s Parliament was dissolved on December 11, 2025, leaving exporters without a domestic compliance framework. Policy continuity is expected following the victory of the ruling Bhumjaithai Party in the recent February 8 general election. However, if the new Parliament does not revive the bill promptly, the legislative process may have to restart, further delaying support. 

• Limited clean-energy availability, with renewables at around 15 percent of power generation and heavy reliance on gas and coal, constrains low-carbon production. 

• These constraints risk eroding the competitiveness of Thai exporters as peers with established ETS regimes and cleaner power mixes move ahead. 

The Philippines: Indirect Vulnerabilities, Possible Opportunities 

The Philippines has relatively low direct exposure to CBAM but is vulnerable through supply-chain linkages in cement, fertilizers, and metals. Only 1.6 percent of the country’s CBAM‑covered products are exported to the EU, with cement the most exposed sector. 

Status of Domestic Response Measures: 

• Philippine legislators are exploring carbon pricing options, including a proposed Low Carbon Economy Act that would establish a carbon pricing framework, including an ETS for large emitters, to reduce emissions. 

• ASEAN strategies (APAEC, Carbon Neutrality Strategy, taxonomies) envision harmonized carbon markets and measurement, reporting, and verification methodologies; aligning national rules with ASEAN frameworks could accelerate Philippine readiness and reduce compliance costs. 

• Near‑term CBAM cost exposure for Philippine exporters is limited. The Philippines’ embrace of renewable energy and desire to promote of low-carbon manufacturing to overcome historical power supply challenges could create new commercial opportunities for investors if CBAM shifts cost structures for exporting to the EU. 

Vietnam: Navigating Challenges, Balancing Goals 

The EU’s CBAM creates major challenges for Vietnam’s manufacturers and exporters in steel and aluminum. Current estimates suggest that CBAM could reduce the value of Vietnam’s steel and aluminum exports to the EU by 4-5 percent, with total annual exports valued at roughly USD 1 billion. Cement and fertilizers are less affected, as the EU accounts for less than 1 percent of Vietnam’s exports in these markets. To adapt, Vietnam aims to introduce its own domestic carbon market to support long-term competitiveness. 

Status of Domestic Response Measures: 

• Vietnam remains committed to its goal of introducing a national carbon credit market but has delayed its initial goal of piloting a national ETS from 2025 to late 2026. 

• While Vietnam is committed to the energy transition and net-zero by 2050, it has also prioritized its energy security by increasing production and investment in coal and gas, limiting clean energy generation growth and low-carbon production options. As a result, steel and aluminum producers face high emissions of intensity and limited abatement options. 

• Foreign invested manufacturers are pushing for more transparency in emission data and clearer emissions reporting guidance from Vietnam’s government. 

Singapore: The Most Prepared Market in the Region 

Singapore’s direct exposure to CBAM is low, with only a small volume of hydrogen exports to the EU. Despite this limited exposure, the city-state is the most CBAM-ready market in Southeast Asia due to its carbon tax and advanced regulatory frameworks. While Singapore’s higher costs, limited space, and workforce constraints continue to make manufacturing more challenging generally, the Johor-Singapore Special Economic Zone could create new opportunities with Malaysia for low-carbon manufacturing. 

Status of Domestic Response Measures: 

• Singapore’s carbon price is currently USD 35 (SGD 45) per ton and is projected to increase to USD 38-62 (SGD 50–80) by 2030. However, in his 2026 Budget speech, Prime Minister Lawrence Wong noted that the pace of future increases may slow as a result of stalled global climate action.  

• The government is promoting low-carbon hydrogen and carbon capture technologies. 

• Exporters in petrochemicals, electronics, and metals are well positioned to meet EU reporting requirements. 

MIDDLE EAST COUNTRIES 

Türkiye  

The EU and Türkiye maintain deep trade integration and business ties stemming from the EU–Türkiye Customs Union, established in 1995. Türkiye is a large supplier of CBAM-covered goods such as steel, aluminum, cement, and fertilizers to the EU. Türkiye does not oppose CBAM outright but is pushing for compliance readiness and technical cooperation with the EU to minimize competitive impacts, with the Ankara Chamber of Industry President Seyit Ardıç urging companies to comply with CBAM and use it as a strategic tool to accelerate Türkiye’s green transformation. 

Status of Domestic Response Measures: 

• On July 2, 2025, Türkiye adopted its first comprehensive climate law, which established the legal framework for a national ETS, carbon-credits, and offset mechanisms. 

• The law also compliments a Türkiye-side border adjustment policy framework with an EU-style carbon accounting system, signaling regulatory convergence. 

• On October 1, 2025, Türkiye and the EU held a high-level climate dialogue in Brussels to review ongoing joint technical work on carbon pricing ahead of Türkiye’s planned ETS launch.  

Kingdom of Saudi Arabia  

Saudi Arabia has publicly criticized CBAM, alongside other EU climate-related trade measures, as undermining competitiveness, arguing that they distort investment signals and harm the ability of energy-exporting countries to sustain emissions mitigation activities. While not among the largest exporters of CBAM-covered products to the EU, Saudi exporters of steel and aluminum face rising compliance and cost pressures due to CBAM’s rollout. In response, Saudi Arabia is positioning some industrial and clean-tech initiatives to navigate the regulatory shift as its emissions governance frameworks evolve. 

Status of Domestic Response Measures: 

• Saudi Arabia has voiced strong concerns about CBAM at the World Trade Organization, characterizing the policy as protectionist, though it has not filed a formal complaint. 

• They have announced a target to “reduce, avoid, and remove” 335 million tons of CO2 equivalent annually between 2030 and 2040. This will be achieved through both greenhouse gas (GHG) and non-GHG environmental metrics, such as renewable energy capacity, land restoration, and afforestation. 

• The Kingdom is investing in managing methane emissions and deploying technologies like carbon capture, utilization, and storage (CCUS), clean hydrogen, and lower carbon aviation fuels — initiatives that could, over time, enhance its competitiveness in carbon-sensitive markets. 

United Arab Emirates  

In 2023, the UAE exported USD 2.7 billion worth of goods covered by the CBAM, more than any other GCC country. The UAE’s industrial and export sectors will need to meet international carbon standards to remain competitive, marking a shift from a model previously focused primarily on domestic efficiency. As a result, the UAE’s aluminum and steel industries have already begun efforts to reduce energy intensity during production.  

Status of Domestic Response Measures: 

• The UAE has not formally, publicly opposed CBAM and is focusing on pragmatic engagement to manage compliance costs while accelerating its green industrial transformation.  

• UAE–EU free trade negotiations present an opportunity to integrate climate policy considerations into a bilateral trade framework. 

• Energy officials report that CBAM is already influencing energy use decisions within the UAE’s industrial sectors, prompting producers to reevaluate energy mixes and reduce emissions intensity as part of broader climate strategy planning. 

The report was written by Jenny Schuch-Page, Ellen Swicord, Kamiryn Rose-Weinberg, and David Saunders, with contributions from TAG’s China, GCC, Japan, South Asia, Southeast Asia, and South Korea practices.