New CAKE Analysis: CBAM and Budgetary Revenue. Prospects for the Europe and Poland

New CAKE Analysis: CBAM and Budgetary Revenue. Prospects for the Europe and Poland

New CAKE Analysis: CBAM and Budgetary Revenue. Prospects for the Europe and Poland

The CAKE/KOBiZE team has published a new analysis of the potential budgetary revenues that could be generated by the Carbon Border Adjustment Mechanism (CBAM). This study was produced as part of the LIFE ENSPIRE project, which focuses on the long-term evolution of EU climate policy and its implications for neighbouring countries (“Exploring New Scenarios for the Progressive Integration of Neighboring States into the EU ETS beyond 2050”).

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The European Union is currently introducing significant changes to its climate policy. One of the key elements of these measures is the Carbon Border Adjustment Mechanism (CBAM), which is linked to the reform of the EU ETS and the gradual phasing out of free allowances. From 2026, CBAM will be mandatory for reporting emissions from imports into the EU. Furthermore from 2028, it will also become a source of EU own resource.

Consequently, there is an increasing demand for thorough analyses assessing the potential economic, fiscal, and competitive implications of this mechanism. By the end of, the European Commission is expected to present a proposal to extend CBAM to include additional products. Meanwhile, many non-EU countries are developing their own pricing systems, which will influence the scale of CBAM charges and the shape of EU budget revenues in the future.

The report presents detailed CBAM-related revenue scenarios for the European Union and Poland in 2030 and 2035, considering various carbon pricing trajectories outside the EU, as well as potential options for expanding CBAM’s product coverage. The analysis shows that CBAM is becoming an increasingly important fiscal instrument and a new source of revenue for the EU budget.

Key findings of the analysis:

• The dual role of CBAM: CBAM not only equalises carbon costs between EU and non-EU producers but also becomes a potentially significant source of public revenue, with 75% of proceeds allocated to the EU budget.
• Substantial variation in revenues is to be expected depending on the scenario:
  • In 2030, projected EU revenues amount to EUR 5-9 billion in the baseline scenario and EUR 16-31 billion under an extended CBAM scope. For Poland, the corresponding values are EUR 0.4-0.8 billion and EUR 1.1-2.1 billion, respectively.
  • In 2035, there will be a continuation of the trend of increased revenues, reflecting the full phase-out of free allocation in the EU ETS and the subsequent full application of CBAM to embedded emissions.
• Major factors that influence revenue levels: prices of EUA in the EU ETS, the pace at which partner countries trading with the EU increase their own carbon prices, and decisions on the extension of CBAM-covered products.
• Geographic and sectoral differences:
  • Under the extended scope, chemicals and refinery products account for a significant proportion of the projected revenues, altering the current revenue structure.
  • China’s share notably increases when downstream products are included.
  • Among the EU Member States, Italy, Spain, Belgium, the Netherlands, Germany and Poland generate the highest projected revenues.
• CBAM and neighbouring countries:
  • The report indicates that countries with strong trade links to the EU (particularly Turkey, Ukraine and the Western Balkan states) may face relatively high CBAM-related costs. However, the introduction of domestic carbon pricing systems (such as the ETS) would substantially reduce this burden.
• Potential benefits of the extension of the CBAM:
  • The extension of the CBAM mechanism ensures that the substitution of raw materials subject to the levy with highly processed products is effectively limited. This ensures that emission costs are taken into account more evenly and that market competition is fairer.

Report clearly point to the need to extend CBAM to additional sectors. Extension of the mechanism is a key step towards genuinely protecting European industry against carbon leakage. It limits the possibility of bypassing climate costs through imports of more processed goods from outside the EU and strengthens the integrity of the EU ETS as a whole. The analysis clearly shows that a broader CBAM scope not only reduces the risk of production shifting outside the EU, but also strengthens the position of European – including Polish and Central and Eastern European – industry by shielding it from high-emission products coming from jurisdictions without comparable climate rules. At the same time, CBAM becomes a serious and relatively stable revenue source that should be explicitly used to finance the transition: investing in clean technologies, industrial modernisation and supporting those regions that face the highest adjustment costs.

This analysis was prepared by CAKE experts as part of the project “Exploring New Scenarios for the Progressive Integration of Neighbouring States into the EU ETS beyond 2050 (101155901-LIFE23-GIC-PL-LIFE ENSPIRE)”, co-financed by the European Union under the LIFE programme and by national funds from the National Fund for Environmental Protection and Water Management.