The European Union (EU) has set a strategic goal of drastically reducing greenhouse gas emissions and achieving climate neutrality by 2050. To achieve this ambitious goal, it has been implementing a comprehensive environmental policy framework for years, with the Emissions Trading System (EU ETS) as its cornerstone.
Under this framework, power plants, airlines, shipping companies, and large industries in specific sectors are required to purchase emission allowances (EUAs) for every metric ton of carbon dioxide they emit.
These allowances are traded on organized markets, and their price is directly influenced by policy decisions that gradually limit their available supply. As supply decreases, the cost of carbon rises, directly affecting energy prices and indirectly impacting production and consumption costs across the entire economy.
However, the stricter implementation of climate policy has highlighted a critical issue: the risk of so-called “carbon leakage,” that is, the risk that European companies will lose competitiveness or relocate their production to countries with less stringent environmental regulations, where there are no corresponding carbon costs. Such a scenario would have negative consequences for both the European economy and the global environment, as emissions would simply be shifted outside of Europe.
To address this risk, the EU introduced the Carbon Border Adjustment Mechanism (CBAM). This mechanism imposes a carbon cost on products imported from third countries, so that they pay roughly the same “pollution fee” as products produced within the EU.
At this stage, the CBAM covers particularly energy-intensive and strategic sectors, such as iron and steel, aluminum, cement, fertilizers, electricity, and hydrogen—sectors that form the foundation of many value chains and directly impact the costs of construction, infrastructure, industrial production, and ultimately consumers and businesses.
The CBAM is being implemented in phases. Specifically, from October 2023 through the end of 2025, the system is in a transitional phase, during which importers do not incur any financial costs but are required to report the emissions embedded in their imported products. Full implementation of the mechanism began on January 1, 2026, with the price of allowances calculated as the weighted average of EUA auction prices under the EU ETS.
Throughout 2026, CBAM certificate prices are published on a quarterly basis, while from 2027 onward they will be calculated and announced on a weekly basis by the European Commission and the European Energy Exchange (EEX).
For the first quarter of 2026, the CBAM price stood at €75.36 per metric ton of CO₂ equivalent. CBAM allowances will be purchased through a central platform, which will become available in February 2027, and must be surrendered within the same year to cover obligations corresponding to the previous year’s imports.
Recognizing the existing research gap surrounding the CBAM, a recent study by the Center for Financial Studies and Education (KEMEX) at the National and Kapodistrian University of Athens, titled “Dynamic Spillovers across CBAM-Covered Commodity Markets” and authored by Dimitrios Kainourgios, Athanasios Katevatis, and Alexandros Tsioutsios, focuses on analyzing the interactions among the core markets that comprise the CBAM—namely, the carbon, energy, and industrial commodities markets.
In this context, daily data for the period May 2020–March 2026 are utilized, and the TVP-VAR econometric model is applied in combination with Dynamic Coupling Analysis (DCA). The results demonstrate that the European carbon, energy, and industrial commodities system is characterized by a high degree of interconnection.
Specifically, the electricity markets of Germany and France, along with the EU natural gas market, emerge as the primary “transmitters” of shocks—that is, price changes in these markets are strongly transmitted to the rest of the system’s markets, while EUAs and industrial commodities primarily act as “receivers” of shocks, reflecting developments originating from the energy markets.
Of particular interest is a comparison of the period before and after the introduction of the CBAM. After October 2023, when the transition period began, the overall interconnection between markets has decreased slightly.
This development does not indicate a weakening of the markets, but rather a restructuring of risk transmission mechanisms. Natural gas further strengthens its role as a key factor in volatility transmission, reflecting its importance as a transition fuel in the energy transition.
The overall integration of electricity markets is declining due to the increased penetration of renewable energy sources in the energy mix, while the importance of coal is gradually diminishing as a result of the phase-out of coal and the tightening of climate policy.
At the same time, EUAs are becoming more sensitive to external factors, as their prices are influenced not only by market fundamentals but also by expectations and regulatory developments directly linked to the EU ETS and the CBAM.
Companies that import products from non-EU countries subject to the CBAM regime bear both the administrative costs of reporting and the cost of purchasing the relevant allowances, while European companies that do not engage in such imports enjoy greater protection against unfair competition.
For consumers, the decisive role of the electricity and natural gas markets in shaping the cost of living is highlighted, as the impacts are indirectly passed on to construction, industry, and ultimately to products.
At the policy level, the key conclusion is that the effectiveness and stability of the CBAM depend to a large extent on the proper implementation and coordination of energy policy.
At the same time, the CBAM serves as a lever for technological upgrading, encouraging investment in cleaner and more sustainable production processes. Finally, it is not merely a trade or tax tool, but a critical pillar in shaping the future of the European economy.
The Laboratory for Financial Studies and Education at the National and Kapodistrian University of Athens (NKUA) provides specialized analyses and studies tailored to the needs of businesses and investors, as well as consulting services to the private and public sectors. For more information, please call 210-3689365/33/49 or email [email protected]
* Dimitrios Kainourgios (center in photo) is a Professor of Finance, a Member of the Governing Council of the National and Kapodistrian University of Athens (NKUA), and Director of the Center for Financial Studies and Education (KEMEX).
* Athanasios Katevatis (left in photo) is a Ph.D. candidate in the Department of Economics at the University of Athens and a researcher at KEMEX.
* Alexandros Tsioutsios is a postdoctoral researcher in the Department of Economics at the National and Kapodistrian University of Athens (NKUA) and a researcher at KEMEX.