Europe’s adjusted carbon tax rules under the European Union’s Carbon Border Adjustment Mechanism (CBAM) are threatening the Kenyan exports as it enters the definitive phase.
According to the State and Trends of Carbon Pricing 2026 report, the CBAM policy represents the first-ever carbon price directly applied to imported goods.
Emerging economies, including Kenya, with high dependence on international markets for economic growth, will experience export competitiveness with the European Union as a trading partners in the market.
Current adjustments to the EU trade rules now dictate that if a country’s carbon emissions exceed those of the EU producer, the exports lose competitiveness in the EU markets. In contrast, those with lower emissions are boosted.
“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,” part of the State and Trends Carbon Pricing 2026 report indicates.
Adjusted European Trade Law
The European Union’s Carbon Border Adjustment Mechanism policy, according to the report, will prevent carbon leakage in countries including Kenya by imposing carbon price payments on importers of specified goods into the EU.
Further, the carbon prices on select imported goods will be paid by European producers and covered under the EU Emissions Trading System (ETS).
Carbon-investing sectors in Kenya, including cement, iron, steel, fertilizers, electricity, and hydrogen, will be required to declare the embedded green gas (GHG) emissions.
Upon declaration of the GHG emissions in the goods annually, the sectors will submit a CBAM certificate to cover the emissions.
Submission of the CBAM certificates annually will be in place to ensure the reduction of free allowances given to the EU-based industrial facilities, according to the report.
While the EU CBAM currently covers less than 0.5% of the total global GHG emissions, the implementations will enhance its coverage going forward.
According to the World Bank analysis, the value of global trade in the EU is estimated at KSh 14.69 trillion, affected by the CBAM policy.
Also Read: Kenya Signals Possible Free Trade Agreement with India Worth Over $2.1 Billion in Imports
Kenya Carbon Tax Strategy
As of 2026, Kenya is identified as a jurisdiction where a national emissions trading system (ETS) is under development.
Additionally, the country is implementing the domestic carbon pricing to align with the CBAM, as the EU allows carbon prices to be paid in third countries through deductions from the CBAM financial obligation.
Further, Kenya has taken a role in the maintenance of the carbon market integrity as a member of the Coalition to Grow Carbon Markets.
Countries such as Canada, France, Singapore, and the United Kingdom (UK), along with Kenya, joined the Coalition to Grow Carbon Markets, launched in November 2025, to promote the integrity of carbon credits.
Also Read: Kenya and China Strike Zero-Tariff Deal to Slash 500 Billion Trade Gap
Paris Agreement Crediting Mechanism (PACM)
Kenya has positioned itself in the European trade through the PACM, which is fully operational in the country as of 2026.
Through the PACM, the country has 11 projects that are being requested to be transitioned from the Kyoto-era Clean Development Mechanism (CDM) to the new PACM framework under the new carbon taxes.
Approval of the transition will enable Kenya to trade Internationally Transferred Mitigation Outcomes (ITMOs) and meet the Nationally Determined Contributions (NDCs).
Further, through the approval, Kenya will use carbon credits to reduce the newly adjusted CBAM obligation taxes on imports.
