New carbon tax regulations introduced under the European Union’s Carbon Border Adjustment Mechanism (CBAM) are emerging as a potential threat to Kenyan exports as the policy moves into its full implementation phase.
According to the State and Trends of Carbon Pricing 2026 report, CBAM marks the first instance of a direct carbon price being imposed on imported goods entering the EU market.
The report warns that developing economies such as Kenya, which heavily depend on international trade for economic expansion, could face growing competitiveness challenges in European markets.
Under the revised EU trade framework, exports from countries with higher carbon emission intensity than European producers risk becoming less competitive. Conversely, countries with lower emissions could gain an advantage within EU markets.
“If a country’s emissions intensity exceeds that of EU producers, its exports lose competitiveness in the EU market. Conversely, having a lower emissions intensity than EU producers can boost a country’s export competitiveness,” the report states.
The CBAM framework is intended to curb “carbon leakage” by ensuring that imported goods entering Europe face carbon pricing obligations similar to those imposed on EU manufacturers under the bloc’s Emissions Trading System (ETS).
As a result, Kenyan industries operating in carbon-intensive sectors such as cement, iron, steel, fertiliser, electricity and hydrogen will now be required to declare the greenhouse gas emissions embedded in their products.
Those sectors will also need to submit annual CBAM certificates to account for the emissions linked to exported goods. The mechanism is expected to gradually replace the free carbon allowances previously granted to European industrial producers.
Although CBAM currently covers less than 0.5% of total global greenhouse gas emissions, the report indicates that its reach is expected to expand over time.
Analysis by the World Bank estimates that global trade worth approximately KSh14.69 trillion within the EU market could be affected by the policy.
Kenya has already begun positioning itself to adapt to the new framework. As of 2026, the country is recognised as one of the jurisdictions developing a national Emissions Trading System (ETS).
The government is also advancing domestic carbon pricing measures to align with CBAM requirements, particularly because the EU allows carbon costs paid in third-party countries to be deducted from CBAM obligations.
Kenya has additionally joined the Coalition to Grow Carbon Markets alongside countries including Canada, France, Singapore and United Kingdom. The coalition, launched in November 2025, seeks to strengthen the credibility and integrity of international carbon credit markets.
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The country is also seeking to strengthen its standing in European trade through the Paris Agreement Crediting Mechanism (PACM), which became fully operational in Kenya in 2026.
Under the PACM framework, Kenya currently has 11 projects awaiting transition from the older Kyoto-era Clean Development Mechanism (CDM) into the new carbon trading system.
If approved, the projects would allow Kenya to trade Internationally Transferred Mitigation Outcomes (ITMOs) while helping the country meet its Nationally Determined Contributions (NDCs) under global climate commitments.
The transition could also enable Kenya to use carbon credits to offset some of the financial burden created by the EU’s revised CBAM import taxes.
