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Tom Heintzman: Welcome to The Sustainability Agenda, a podcast series focusing on the evolving complexities of the sustainability landscape. I’m your host, Tom Heintzman. Please join me as we explore today’s most pressing issues with special guests that will give you some new perspectives and help you make sense of what really matters.

Dan Maleski: “Peter Liese is a member of the European Parliament. And infamously, he said, CBAM is the most important climate policy you’ve never heard of. The reason is because in the next 24 months, give or take, we are going to see a massive surge of global carbon pricing and global responses solely because of the EU CBAM.”

Tom Heintzman: Welcome to our multi-part series on carbon dioxide capture and removal and the carbon markets. Throughout this series, we will examine key issues impacting the compliance and voluntary markets and how participants are navigating this landscape in response to evolving policies.

On today’s episode, we will explore the European Union’s Carbon Border Adjustment Mechanism or CBAM. CBAM aims to reduce carbon leakage by imposing a carbon tax on emission-intensive commodities imported into the EU, including aluminum, cement, electricity, fertilizers, hydrogen, iron and steel. A transitional reporting phase came into force on October 1st, 2023, and a definitive phase will begin on January 1st, 2026, so shortly, which will require importers to purchase and surrender CBAM certificates to cover embedded emissions.

Today, we’re going to discuss recent developments to CBAM in the context of the EU carbon pricing policy, CBAM’s evolving implications on global trade, and what companies can do to manage increasing carbon costs.

Please welcome my guest, Dan Maleski, a senior environmental markets consultant at Redshaw Advisors. Based in London, England, Dan focuses on the European compliance markets as a lead CBAM advisor. He works at the intersection of climate policy and global trade, helping financial institutions, industrial entities, governments, and other stakeholders navigate the financial risks and opportunities associated with carbon markets and border carbon adjustments. Dan, welcome and thank you for joining us on the show.

Dan Maleski : Thank you very much, Tom. Thank you for having me.

Tom Heintzman: So Dan, big topic and very timely, ⁓ maybe even more timely than our listeners realize. So the last time we spoke about CBAM on this podcast was back in March, 2023, but a lot’s changed since then. Can you begin by catching us up on the latest developments in EU carbon pricing policy and what impacts does this have for carbon markets in Europe?

Dan Maleski: Yeah, well, great question, Tom. In short, the EU is looking to take a step back from some of the reporting policies that you might be seeing things like EUDR, CSRD, the other environmental acronyms, as I like to call them. When it comes to European carbon pricing, well, the EU is doing almost the opposite. It’s actually doubling down. It’s ensuring that these mechanisms are getting more ambitious, that they’re growing, and that the EU continues to be leading the world when it comes to effective climate policies.

The impact this has on the wider European carbon market, predominantly the EU emissions trading system, is very much a bullish signal. See, if I’m an investor, if I’m a hedge fund or a pension fund or anyone looking to interact with this market, or an industrial who’s forced to comply, having certainty that this market’s going to exist well into the future, past 2040, is going to give me confidence, and that confidence is going to allow me to make more long-term decisions.

At the end of the day, a cost of carbon is here to create a pricing signal for me to abate my emissions. And so, in Europe, we have a cost of carbon that’s quite high right now and that is going to continue to climb in price. What does that conclude in? It concludes that industrials and folks exposed to this cost of carbon have to try and decarbonize. Otherwise, polluting, business as usual, simply won’t be profitable. The result for the last call at 16, 18 months is very, very important and very positive for European climate ambitions under the European carbon pricing regimes.

Tom Heintzman: I think what I heard was they’re taking a slight step back from reporting, but a slight step into carbon pricing. Can you maybe just elaborate a little bit in terms of what the step forwards consisted of?

Dan Maleski: Yeah, so there might be some folks on this podcast who might be not as familiar with Europe’s kind of vehicle to attain its net zero ambitions. And that primary vehicle is something called the EU ETS, European Union Emissions Trading System. And the best way to elaborate on what this is, is Europe commoditizing carbon. They went to industrials back about 20, 25 years ago and they said, go into pollutant Europe. That’s fine. You just have to buy an allowance to do so or receive an allowance to do so, something called an EUA. These EUAs are tradable and they’re rather expensive.

And so with that context in mind, in the last two years, Europe has expanded this regime. So it’s added new sectors. In the last two years, Europe has increased this market’s ambition, right? It’s going to make it more expensive. It’s going to make it more robust.

So from a fundamental and a market structure view, this is ambitious. But more importantly, and really very topical for today’s conversation, they’ve done something which has never been done ever, which is to try and export its own cost of carbon to its major trading partners. And that, of course, is the CBAM. And the quick story is in this emissions trading system I mentioned earlier, in the EU ETS, the EU gives free allowances to pollute, something called free allocation.

And the justification is rather simple, if we give our industry a significant burden of cost, the cost of carbon, they’re just not going to be competitive. And what they might do is deindustrialize and relocate to countries without the cost of carbon. That’s something called carbon leakage. Europe, put their top minds to this issue. And what they came up with is the CBAM, the carbon border adjustment mechanism. And the CBAM is here to not only replace that free allocation permanently, manage carbon leakage, but also really interesting, it’s here to encourage Europe’s trading partners to incorporate their own costs of carbon.

Tom Heintzman: Dan I want to explore the implications on the Europe’s trading partners in a moment. But just one last question about domestic internal policy. We in North America read a lot about rising prices of energy and electricity in Europe, and CBAM would seem to increase cost of living for Europeans. How is CBAM being received by the general populace? Particularly in light of what we see as maybe a rightward swing in European politics, particularly in Italy, seemingly recently in France, somewhat in the UK, et cetera.

Dan Maleski: So this is one of the ingenious designs of the European cost carbon, is it’s rather hidden. So if you go to any street in Europe and you talk about the EU ETS or European carbon, I would significantly relate to the idea that no one knows what you’re talking about. And it’s kind of designed that way. See, the EU ETS has exposure maybe 4[,000] to 5,000 companies, predominantly quite upstream, right? So big steel plants, cement plants and power plants.

So that means we don’t really get to see that cost of carbon. It’s passed down, it’s very diluted. And so the result is a bit of ignorance. And that’s one of the reasons why the EU ETS has been rather successful. Let’s take an example of some of the tension we saw last year with the farmers in France who were protesting, right? They’re protesting because of something that is going to impact them. They can see it, it’s almost tangible, compared to a cost of carbon that’s fairly intangible and really only impacts the industrials and power companies. Now, of course, they pass that cost on, but because that cost isn’t necessarily seen from the end consumer, it’s not necessarily as well known. And so this carbon cost, the EU ETS has gone relatively unscathed for quite a while.

Now, there are other mechanisms, coming in a matter of years that is going to be a bit more front lines, you know, people at gas pumps around Europe will be looking at that and as a result of it The EU ETS 2 is a much more politically charged topic So CBAM like the EU ETS is a bit hidden where it is going to be incredibly expensive and incredibly important to some of the major importers But it won’t really impact you and I and so because of that political nature of these policies might not be discussed as much as they ought to because they’re bit hidden. It goes back to some of the ingenuity of how this market was designed back in 2004 and 2003 ⁓ where policymakers had to design a mechanism that is going to be expensive, but obviously you need to get some political support behind it. So how do you do that? Well, sometimes you don’t let your constituents know about it, not openly.

Tom Heintzman: Are conservative parties in Europe supportive of CBAM?

Dan Maleski: Broadly, yes. ⁓ CBAM is going to help the EU industry in two major ways. The first way is it’s going to make Europe more competitive inside Europe. And the second way is because it’s going to mitigate a lot of the oversupply of some sectors, predominantly steel. So very simple example for you. Let’s say I am a cement producer in Europe and because I’m exposed to the EU ETS, around 30% of my entire cost of cement constitute the cost of carbon. That is true, by the way. It is very expensive. And so if I’m making my cement plant in, let’s say, Poland, I’m going to be competing against cement, let’s say, produced in Turkey without a cost of carbon. That doesn’t have to bake in that 30% cost, right? And so automatically, when CBAM comes in, it’s going to, in principle, create a more level playing field because now that Turkish exporter will have to pay that cost of carbon via the CBAM. The result of that is a more competitive domestic atmosphere for EU industrials.

The other issue that CBM solves is a lot of the ⁓ oversupply of a of the commodity sectors and predominantly steel. And so when we look at the lobby groups in Europe, ⁓ SEMBUREAU, EUROFER, EU Aluminium, they’re all fairly pro CBAM. Now they want their own tweaks with CBAM. They want to change a handful of it, but a lot of these groups are the ones that initially lobbied for CBAM. And so when it comes to the validity and sustainability of this regime, it’s being supported by the lobby groups, it’s being supported by most of the industrial efforts. And as result of that, I’m fairly optimistic that it’s going to survive new political rulers in some of these countries.

Tom Heintzman: Interesting. Okay, let’s look beyond Europe. How are other countries responding to CBAM? Who’s looking to implement their own border adjustment mechanisms? And, you know, can you provide some examples of how various countries are responding?

Dan Maleski: So I’m going to quote Peter Liese. It’s going to make sense why I’m doing it. Peter Liese is a member of the European Parliament. And infamously, he said, CBAM is the most important climate policy you’ve never heard of. The reason is because in the next 24 months, give or take, we are going to see a massive surge of global carbon pricing and global responses solely because of the EU CBAM.

And if we fast forward the clock and if we do another webinar or a podcast like this and call it 2027, the dynamic is going to be completely different around the world. And the reason is because CBAM, it allows for goods which have already been exposed to a cost of carbon for that exposure to be deducted and given back via a rebate. So in principle, and to make it really simple to talk about, let’s say I’m in Canada and I’m exporting steel to the EU. Let’s say I produce one ton of steel and that one ton of steel makes one ton of carbon. Nice and easy. If I pay 50 euros of a carbon cost in Canada for that one ton of carbon I produced, and my CBAM bill is 100 euros, well, the 50 euros I paid is going to be given back to me via a rebate. And as a result of that, the money will stay in Canada. And so the takeaway is treasuries in governments in Canada don’t want their companies to be sending money to Brussels to pay the CBAM. They’d rather have a cost of carbon in Canada, keeping the money in Canada.

And so we’ve seen that exact same paradigm happen in Turkey, which is moving forward with their ETS, in China, which is strengthening their ETS, in India, which is starting their own ETS, in about, I probably at this point, I’d say 15 different developed and developing countries who are radically looking at changing their carbon landscape as a direct response to CBAM. And so from a political perspective and a geopolitical perspective, we are seeing the largest increase of global carbon pricing. And you look at the culprit, it’s CBAM. And it’s designed to do this. It’s a second goal of the CBAM. It’s to encourage incentivized trading partners to incorporate their own cost of carbon, which it’s doing successfully.

Tom Heintzman: So Dan, I’m going to guess that a lot of our listeners are surprised at your view that there will be a lot of discussion about carbon pricing in the next 20 months, just given that the level of dialogue in North America has ebbed rather than flowed. I heard a similar thing at Climate Week earlier this year, where there was speculation that at COP 30, Brazil and others would announce CBAM-like programs and that you would see a number of countries signing on to a more global cost of carbon like the EU is envisaging. And I’m wondering whether you’ve heard the same thing and whether we may see some announcements at COP 30.

Dan Maleski: Great question. And my quick answer is I don’t think that would work. And the reason why is quite simple. In order to have a CBAM or a border carbon adjustment, you need a domestic carbon price that is high enough, which encourages carbon leakage. So a very simple example is in America. So right now, America, there are a handful of CBAM style proposals which are being discussed and potentially incorporated.

There really is no basis for them to do that because there’s no federal cost of carbon in America. So in Europe, for example, right now, I can confidently say one ton of carbon in Europe is around 80 euros flat. Yesterday was around 78 euros. Tomorrow, well, we don’t know because it’s a moving market. What is the cost of carbon in America? Because they don’t have one. They don’t have a federal cost of carbon. And so it defeats the entire principle of why a border carbon adjustment works and why one is needed.

Now, realistically, what a lot of companies and countries are looking at CBAM as is a tariff. CBAM isn’t a tariff. There’s just a lens that you’re looking at it in. See, you don’t have to pay a dime for CBAM costs if you have a cost of carbon already paid. So look at the UK, for example. If any power is exported from the UK to the EU, there wouldn’t be any CBAM costs because in the UK, you have a carbon cost that is actually higher when it comes into power production with the CPS, then the EU cost carbon. So therefore you’d have a full rebate. And any country can do that. It’s just companies and countries are waking up to how expensive this is actually going to be. And therefore they don’t think it’s fair. To give you just an indication, just a simple indication of what we’re expecting in the coming years. As of right now, we are looking at the price of cement imported into the EU to double within the next two years, triple by 2030 and potentially quadruple by 2034.

You heard me right. Primary aluminum is looking at doubling by 2034. Steel prices across the board are looking to go up around 70 to 90 percent as a direct result of CBAM by 2034. We have a significant, significant bill right on the doorstep of a lot of companies. The majority of my clients are looking at paying north of two to four million euros a year, starting in less than 90 days, January 1st, 2026, because of CBAM.

Their mouth is open. They can’t believe it. But what people don’t understand is this is the same exact costs that have been being incurred in Europe for the last 20 years. People always ask, right now power prices in Europe are around three times more expensive than the rest of the world. Why? Now, there’s a lot of reasons why. One of the reasons is the cost of carbon. But that’s also one of the reasons why Europe has been able to decarbonize its grid so significantly.

For the most part, is unprofitable to burn coal and lignite in Europe to an extent because of carbon. Now that changes all the time, fuel switching and whatnot. But if I’m RWE, one of the largest power producers in Germany, I physically have to stop burning coal because I’m not making money. Because coal is more carbon intensive than gas. And therefore, because the cost of carbon is so high, it is unprofitable. And so this market works, but it’s very expensive.

Tom Heintzman: So I’m sure that many of our listeners are listening to those stats and their jaws drop, the cost of cement going up fourfold, aluminum and steel also going up significantly. How will Europe remain competitive? How will foreign countries be able to buy their cars and buy their products if the raw materials are going up in price that much?

Dan Maleski: Well, they won’t because the raw materials will stop entering Europe. So in 2021, before the CBAM was entered, the European Commissioned one of their main research centers to do some reports on the economic impact of CBAM. And I’m quoting the report, it’s called the 2021 European Commission CBAM Assessment Report. It’s on the second paper. And in that second paper, they anticipate a 12% reduction of all imported goods under CBAM by 2030. 12% less steel into the block, 12% less cement and aluminium. So we talk about supply and demand dynamics of an economy. Europe is going to have a significant shift, again, Europe is a net importer. Europe’s also one of the largest importers in the world. So CBAM then creates two new areas of interest. Area number one, what’s that gonna do to the global European inflationary aspect of construction and car manufacturing, which I can touch on.

But more interesting enough is where is the excess of all these commodities going to go? If they’re not going to be sent to Europe, where else were they going to go? America? I mean, right now, steel is already having a significant overcapacity issue. And we’re going to take off one of the main buyers of steel globally. Where is that steel going to go? CBM is really impactful. Now, you might be saying, well, how is Europe going to even compete? Well, they’re going to compete because they’re rather clever and they’re really good at carbonizing. And so right now, for example, you can make steel two ways. One is your orthodox route, your blast furnace. The other one is your electric arc furnace. We call that more green steel. Green steel maybe produces 0.1 to 0.3 tons of carbon emissions per ton of steel, while blast furnace produces around two tons of carbon per ton of steel.

Right now, one ton of carbon in Europe is trading around 80 euros. That’s for your dirty steel produced the Orthodox way, add a premium of 160 euros on it, while your green steel, you know, it’s only a few euros. It’s not that bad. so Europe won’t actually necessarily have to pay all that much for their carbon costs because they’re decarbonizing.

It goes back to a saying I always like to say, know, capitalism got us into this mess, i.e. the Industrial Revolution. We have to leverage capitalism to get us out of this mess i.e. an incentive-based market which allows companies who have decarbonized to be profitable and who penalizes companies who don’t decarbonize to realistically go bankrupt. And I mean, lot of our clients at Redshaw Advisors are making incredibly dramatic decisions. The boards of these companies. What they believe in is giving back to their stakeholders and being profitable. they’re decarbonizing not because they care about the environment, because they care about their money. And it’s brilliant.

And so then you, all of a sudden you have some of the top minds, know, BCG, McKinsey, banks all across Europe who are trying to decarbonize not because, again, the climate change, because they can make money with it. And it’s using all of that, all that brain power to solve one of the hardest issues of our generation, which is climate change. CBAM is the key. It’s now not just doing that in Europe, which we’ve already technically successfully, we’re moving in a very good direction when it comes to our abatement and our decarbonization. But you look at America, you look at China, you look at Brazil, they’re not. CBAM is going to change that. Because right now, Europe just went to China and said, hey, you want to continue to export into Europe? It’s fine. You just need to decarbonize. Otherwise, your exports won’t be profitable.

Tom Heintzman: So is it your view that China and India and some of the other large producers will put into place effective carbon pricing policies in the next?

Dan Maleski: Yes, they’re going to try and circumvent it. They’re going to try and get around it., but at the end of the day, Europe’s also rather clever and those loopholes will be closed. And so that’s going to result in a very unhomogeneous world when it comes to carbon prices, a very complex world and a very expensive world, but a world that requires decarbonization if you want to be profitable.

And the cool thing with, probably the most important thing with CBAM is this. So let’s say I am Turkey, half of their exports go to Europe. They’re significantly tied to Europe and significantly exposed to CBAM. So because they want to still be competitive, Turkey has announced and moving forward with emissions trading system, their own cost carbon. But here’s the interesting thing. When Turkey has an ETS and when their cost of carbon goes up, what are they going to have? Carbon leakage. So what does that mean they need? A CBAM themselves, right? So it’s a domino effect. The first CBAM or BCA ever was actually in America. The California ETS for its power, they had carbon leakage. And this is an idea that any jurisdiction with a cost of carbon is going to have to get to at some point. Europe’s just the first one doing it. First, domino or fall. That’s why I get quite excited about it, right? It’s looking at a policy that’s really going to change the world. And I find that quite cool.

Tom Heintzman: Dan, this has been fascinating. One last question for you. There’s already been a significant amount of evolution surrounding CBAM regulation. Do you expect changes going forward? And if so, what types of changes or what type of evolution?

Dan Maleski: Yep, so CBAM is going to get bigger. Right now, we have the main upstream industrial sectors exposed to CBAM, your steel, your aluminium, your fertilizer. We’re going to see CBAM expanded horizontally when it comes to sectors. So things like paper and pulp, ceramics, glass, plastics, refining, and a handful of other sectors. And then we’re also going to see CBAM expand vertically. So downstream emissions, downstream goods, right? And so it’s going to expand quite significantly. Right now, CBAM covers 752 individual CN codes. That is going to change. We are going to see CBAM expand to well over a thousand. I believe if organic chemicals alone gets added to CBAM, it would double the entire CN exposure. And so this is going to be a policy, again, that’s going be really, really big and it’s going to have implications across the world.

Tom Heintzman: Dan, thank you for your time. That was fascinating. And you mentioned getting back together in a couple of years to assess the changes. And I look forward to doing that. Thanks for coming to the show today. And thank you to the listeners for tuning in.

Dan Maleski: Pleasure is mine. Thank you for having me.

Tom Heintzman: If you’d like to learn more about how your business can navigate and participate in carbon dioxide removal and the carbon markets, please join us for CIBC’s third annual carbon summit on October 23rd, 2025 in Toronto. The summit brings together global experts across the carbon value chain to examine project development, innovative financing mechanisms, and the transformation of carbon markets and technologies in response to evolving policies. To register, please contact your CIBC Relationship Manager. Please join us next time as we tackle some of sustainability’s biggest questions, providing you different perspectives to help you move forward. I’m your host, Tom Heintzman, and this is The Sustainability Agenda.

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EU Carbon Border Adjustment Mechanism (CBAM): Shaping the global response to carbon pricing

Tom Heintzman

MD & Vice-Chair, Energy Transition & Sustainability

CIBC Capital Markets

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