CBAM — Carbon Border Adjustment Mechanism

Regulation (EU) 2023/956

Scope and goods in scope

Carbon Border Adjustment Mechanism. Equalises the carbon price between imported goods and EU goods produced under the ETS, to prevent carbon leakage as the EU tightens its own emissions trading rules.

In force

Adopted 10 May 2023. Transitional phase: 1 October 2023 – 31 December 2025. Definitive phase: 1 January 2026.

Sectors in scope

Cement, iron and steel, aluminium, fertilisers, hydrogen, electricity. CN codes listed in Annex I.

Downstream products

Selected processed goods (e.g. screws, bolts and articles of iron/steel; aluminium structures) are also in scope where the embedded emissions can be meaningfully attributed.

Scope expansion

Commission required to assess extension to organic chemicals and polymers by 2025–2026, with view to broader coverage by 2030. Indirect emissions coverage also under review.

Article 30 · Article 22

Transitional vs. definitive phase

CBAM rolls out in two distinct phases. The transitional phase establishes reporting infrastructure; the definitive phase introduces financial obligations and gradually replaces ETS free allocation.

Transitional (Oct 2023 – Dec 2025)

Quarterly CBAM reports. No CBAM certificates required, no financial obligation. Default values may be used for embedded emissions in the first quarters; verified data progressively required.

Definitive (from Jan 2026)

Annual CBAM declaration. Importers must purchase and surrender CBAM certificates equal to embedded emissions in imported goods, minus any carbon price already paid in the country of origin.

ETS free allocation phase-out

Free ETS allowances for CBAM sectors phased out 2026 → 2034 in linear steps: 2.5% reduction in 2026, growing each year, reaching 100% reduction by 2034. CBAM certificate obligation grows on the same trajectory.

Certificate price

Calculated weekly as the average closing ETS auction price in the prior calendar week. Tracks EU ETS price one-for-one.

Articles 5–9, 22–27

Importer obligations

From 2026, only Authorised CBAM Declarants may import CBAM goods into the EU. The status carries data-collection, certificate-surrender, and verification duties.

Authorised CBAM declarant

Status granted by national competent authority. Requires good administrative standing, financial capacity, and EORI registration. Application via the CBAM Registry.

Annual CBAM declaration

Submitted by 31 May for the preceding calendar year. Reports quantity of CBAM goods imported and total embedded emissions.

CBAM certificates

Purchased from a central platform. Quantity surrendered each year covers embedded emissions, net of any carbon price paid at origin. Certificate price tracks the ETS weekly auction average.

Account requirements

Importer must hold sufficient CBAM certificates by the end of each quarter — at least 80% of the projected annual surrender obligation.

Re-export and inward processing

Goods placed under inward processing may be excluded from CBAM if subsequently re-exported. Conditions and documentation defined by implementing acts.

Annex IV

Calculating embedded emissions

Embedded emissions cover direct emissions from production and, for some sectors, electricity emissions. Methodology is sector-specific and aligned with EU ETS monitoring rules where comparable.

Direct emissions

Required for all sectors. Calculated from installation-level monitoring or, in the transitional phase, from default values published by the Commission.

Indirect emissions

Required for cement, fertilisers, electricity, and some downstream products. For iron/steel and aluminium, indirect emissions are reported but currently excluded from the financial obligation — subject to review.

Default values

Published by Commission per country and product where verified data is unavailable. Default values are intentionally conservative — financial incentive favours installation-specific reporting once feasible.

Verification

Definitive phase requires verification by accredited verifier. National accreditation bodies grant accreditation on rules aligned with EU ETS Monitoring and Reporting Regulation.

Carbon price paid at origin

Importer may reduce surrender obligation by the carbon price already paid in the country of production — provided it can be substantiated and is not offset by rebates.

Supply geography

Country exposure under CBAM

CBAM hits exporters whose carbon intensity exceeds the EU average and who lack a carbon price comparable to the EU ETS. The reshuffle of EU import sourcing under CBAM will not be evenly distributed.

China

Major exporter across steel, aluminium, fertilisers, hydrogen. Carbon intensity above EU average in most CBAM sectors. National ETS exists but covers only the power sector and trades at a small fraction of the EU ETS price — limited offset against CBAM surrender.

Turkey

Cement, fertilisers, steel. Geographically positioned for EU market access. No comprehensive carbon price; CBAM exposure significant. Domestic ETS in pilot.

India

Steel, aluminium, fertilisers. Coal-heavy electricity mix raises embedded emissions per tonne. No national carbon price applicable.

Russia

Historically a major exporter of CBAM goods (steel, aluminium, fertilisers). Sanctions following 2022 reshaped flows; CBAM compounds the structural shift.

Ukraine, Western Balkans

Steel and electricity exports to the EU. Ukraine ETS alignment under negotiation; Western Balkans Energy Community pricing schemes increasingly relevant.

UK, Norway, Switzerland

Linked or comparable ETS regimes. UK CBAM scheduled for 2027. Substantial mitigation of CBAM exposure on EU imports — but governance overhead remains.

CBAM is a price equaliser, not a quota. A high-carbon-intensity exporter is not blocked from the EU — they pay. The procurement question is therefore not "can we still buy from X" but "is the landed cost still competitive after CBAM".

Article 26

Penalties and enforcement

Two types of penalty apply: for under-surrendering certificates against actual emissions, and for importing CBAM goods without authorised declarant status.

Under-surrender

€100 per tonne CO₂e of emissions not covered by surrendered certificates (indexed annually to EU consumer price index). Surrender obligation remains in addition to the penalty.

Importing without authorisation

Higher penalty: three to five times the standard rate. Applies to imports made without authorised CBAM declarant status from 2026.

False reporting

Member-state-level administrative penalties for inaccurate or misleading CBAM reports during the transitional phase. Levels set by national legislation, generally proportionate to scale.

Anti-circumvention

Commission may extend CBAM to additional goods or origins where evidence shows circumvention — for example, minor processing in a third country to shift CN classification.