How Other Countries Are Answering CBAM, and What It Means for Korea

The word staff at exporting manufacturers hear most often these days is CBAM, the Carbon Border Adjustment Mechanism. The name is long and complicated, but the starting point is a single simple principle: a product made with a lot of carbon emissions pays more when it enters the EU. This piece looks at how different countries are answering the mechanism, and at what Korean companies should be preparing.

Why it came about — a device against carbon leakage

The EU has applied carbon regulation to its own companies since 2005. Emit carbon and you have to buy allowances and pay for them. It worked in environmental terms, but for EU companies it came with a side effect: manufacturing costs rose.

Some companies then moved production bases to countries with looser regulation, or began buying products from such countries instead. Inside the EU carbon appears to fall, but in reality it is being emitted somewhere else. Looked at globally, carbon does not go down. This is what is called carbon leakage.

The EU created CBAM to deal with that problem. The idea is to charge imports into the EU carbon costs at the same level as EU companies bear — a kind of carbon tariff.

CBAM made simple — two jeans factories

Suppose two factories make the same pair of jeans. The numbers below are an illustrative example, there to explain the principle.

In the past, the product from the cheaper factory B was naturally the stronger one. But once CBAM applies, a cost is attached to the extra carbon emitted when factory B's product clears EU customs. The price gap against the low-carbon product from factory A narrows, or reverses.

The way of emitting a lot of carbon in order to make things cheaply stops being the winning way — that is how CBAM works.

How countries are answering — three different choices

Answers to CBAM divide broadly into two paths. One is industrial transition, changing the way of producing to a low-carbon one; the other is a policy answer, introducing a domestic carbon price to change where the money flows.

Why the Türkiye case matters in particular — CBAM contains a rule that carbon costs already paid in the exporting country are deducted in the EU. If carbon tax has already been paid at home, it is not charged twice on export to the EU. Türkiye is understood to have used that rule to choose a strategy in which, if the carbon cost has to be paid anyway, the money does not leak out to the EU but comes into its own treasury.

What it means for Korean exporters

The Korean government is wrestling with much the same question. Discussion is understood to be under way on aligning Korea's emissions trading scheme (K-ETS) so that CBAM recognises it.

At company level, the sectors directly affected by CBAM are the six goods set by the European Commission.

If your company is in one of these sectors, reporting of product-level carbon emissions for goods exported to the EU is already being required. The point that deserves more attention is the indirect route. Even materials and parts companies that do not export to the EU directly are increasingly receiving CBAM data requests inside the supply chain of the large exporter they supply. That cost and data burden ends up bearing directly on the price competitiveness of the product.

Three reasons to start now

First, preparing the data takes time. The basis of answering CBAM is product-level carbon emissions data. You have to collect data across the whole process, from raw material inputs through process energy use to waste treatment, and a company doing it for the first time normally needs somewhere between six months and a year.

Second, switching to renewable energy does not happen instantly. Cutting emissions means raising the share of renewable energy you use, and RECs, PPAs and self-generation are all routes that take time from contract to delivery.

Third, the later you are, the more it costs. Demand for renewable energy is rising and procurement prices are on an upward trend, while government subsidies are heading in the direction of being reduced. Acting now is generally cheaper than acting a few years from now.

What should our company do first?

In closing — Corporate Energy Transition Center's view

The cases abroad have something in common. Those who waited were pushed out; those who moved first took the opportunity. Some countries shifted to low-carbon production, others changed the rules themselves in response. The methods differ, the direction is the same.

Korea's small and mid-sized manufacturers are no exception to this current. If anything, even where direct exports to the EU are a small share, there are far more companies feeling the indirect pressure inside a supply chain. The companies that build up their data and start their switch to renewable energy now are the ones that will still be in the supply chain in 2028~2030.