A Complete Guide to the EU's Carbon Border Adjustment Mechanism (CBAM)
- John Hall
- Customs Specialist at iCustoms.ai
What if the cost of pollution followed your product across borders?
That’s exactly what the EU’s Carbon Border Adjustment Mechanism (CBAM) is based on.
The European Union is taking a bold move to make sure that imported goods don’t receive a free pass when it comes to carbon emissions, as climate change gains more attention on the international agenda. More than just a policy, CBAM serves as a wake-up call for global importers, exporters, and manufacturers.
All items that arrive in the EU now have a climate accountability tag, regardless of whether they are steel, cement, aluminium, or fertilisers.
Let’s discuss CBAM in detail:
What Is CBAM?
The Carbon Border Adjustment Mechanism (CBAM) is the EU’s system for putting a fair price on carbon emissions from the production of carbon-intensive goods entering the EU. It also encourages cleaner industrial production in non-EU countries.
It’s part of the “Fit for 55 in 2030 package”, the EU’s plan aimed to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels.
Think of CBAM as a carbon price at the border: when carbon-intensive goods arrive in the EU, they’re treated just like locally produced items under the EU Emissions Trading System (ETS); they must “pay” for the emissions embedded in them.
By extending the EU ETS’s carbon pricing to imports, CBAM ensures a fair competition between EU-made and imported products, so there’s no advantage for manufacturers in countries with weaker climate rules.
When does CBAM start?
CBAM is already underway. It’s being rolled out in two phases:
1. Transitional phase
- From October 1, 2023 to December 31, 2025
- Importers must report the carbon emissions linked to their imported goods every quarter
- No payments are required yet, but penalties apply if reports aren’t submitted correctly or on time
2. Definitive Phase
- Starting January 1, 2026
- Independent verification of emissions data will be required
- Importers must start paying for carbon emissions using CBAM certificates
- CBAM rules will be gradually phased in as free emissions allowances under the EU Emissions Trading System (ETS) are reduced
- By 2034, importers will have to cover 100% of the carbon emissions linked to the CBAM goods they bring into the EU
Why does CBAM matter?
Fighting carbon leakage
Carbon leakage occurs when businesses move production from countries with strict climate laws (like EU states) to those with weaker regulations, undermining global emissions goals. CBAM tackles this by equalising carbon costs across borders.
Supporting EU climate goals
CBAM directly supports the EU 2030 Climate Target Plan. By putting a price on the embedded carbon in imports, the EU sends a clear signal: green production isn’t optional; it’s the future of trade.
Encouraging global decarbonisation
CBAM aims not just to protect the EU market but also to promote greener production internationally. Exporters to the EU now have a financial reason to adopt cleaner technologies, especially if they want to remain competitive.
What do importers need to report under CBAM?
If your business imports goods into the EU that fall under the CBAM scope, you’re required to report the embedded emissions. That is the total greenhouse gases released during the production of those goods. This includes emissions from energy consumption, industrial processes, and raw materials.
Confused about embedded emissions?
Think of them as the carbon footprint of a product before it reaches the EU border. These emissions come from:
- Energy used in production (like electricity or heat)
- Industrial processes (e.g., chemical reactions or smelting)
- Upstream materials and components
CBAM ensures this climate impact is tracked and priced, whether a product is made inside or outside the EU.
Reporting requirements by phase
CBAM reporting is being implemented gradually, beginning with a small number of high-emission industries and working its way up.
Below is a summary of what is needed:
Phase | Reporting period | What needs to be reported |
Transitional phase Oct 2023 – Dec 2025 | Quarterly reporting |
|
Definitive phase From Jan 2026 onward | Annual reporting |
|
By 2030 | Scope expansion |
|
Which products and sectors are covered under CBAM?
The EU began CBAM with a narrow but strategic scope. In the transition phase, it will apply to the following EU imports having high carbon intensity:
- Iron & Steel: Includes semi-finished products like coils, sheets, pipes.
- Aluminium: Covers unwrought and semi-finished forms.
- Cement: Both grey cement and clinker.
- Fertilizers: Nitrogen-based fertilizers (e.g., ammonia, urea).
- Electricity: For countries connected to the EU grid.
- Hydrogen: Added to reflect clean hydrogen ambitions in the EU.
It is anticipated that by 2030, CBAM will cover all product categories covered by the EU ETS as well as products that have a potential for carbon leakage, such as:
- Crude petroleum and petroleum products
- Inorganic basic chemicals
- Industrial gasses
- Synthetic rubber
- Non-ferrous metals
These sectors were chosen due to clear carbon footprints, existing data structures, and strong trade volumes with the EU.
For more information, click here!
How is the CBAM charge calculated?
Importers will have to purchase CBAM certificates, which cover one tonne of CO₂ equivalent embedded in their goods, when the definitive phase begins (in 2026).
The actual cost is based on this formula:
CBAM Cost (€/t) = EUA Price (€/tCO2e) × [Direct EF (tCO2e/t) – (Benchmark (tCO2e/t) × Phase In Rate)]
Total CBAM Cost (€) = Volume (tonnes) × CBAM Cost (€/t)
Who needs to comply with CBAM?
Importers who bring particular carbon-intensive goods into the EU from non-EU countries are primarily responsible for fulfilling CBAM obligations.
But the compliance net is wider; it involves the following:
EU importers
Starting from October 2023, any organisation based in the EU that imports carbon-based products needs to register on the CBAM Transitional Registry as an Authorised CBAM Declarant.
From 2023 to 2025, these importers must submit quarterly emissions reports. Starting in 2026, they must also buy and turn in CBAM certificates based on verified emissions.
Indirect customs representatives
A customs representative (such as a freight forwarder or customs broker) can be designated by non-EU organisations exporting CBAM goods into the EU to handle CBAM duties on their behalf.
This is common when non-EU companies wish to retain market access without directly navigating EU compliance systems.
Manufacturers and exporters in third countries
Despite not having to abide by CBAM by law, they play an important role. They provide emissions data to importers in the EU. If upstream suppliers fail to provide accurate information, importers risk fines or being forced to use conservative default values, which could be costly.
In some cases, third-country exporters voluntarily collaborate by hiring accredited verifiers to accurately calculate emissions.
How to prepare for CBAM reporting?
Follow these steps to get yourself ready for CBAM reporting:
Step 1: Know about the scope of CBAM
Begin by understanding the basics of CBAM, such as the types of products it applies to; these are aluminum steel, hydrogen, fertiliser, cement, and electricity. Your first task would be if your imports fall under these categories.
This step may seem obvious, but skipping it could lead to major compliance issues later.
Assign a member of your organisation, such as a compliance manager or ESG officer, to keep abreast of the constantly changing CBAM regulations. This is continuous work, not a one-time inspection.
Step 2: Check and arrange your emission data
Examining your items’ carbon footprint is the next step after determining that they fall within the scope.
To accurately calculate and report embedded emissions, you will need this information.
In what location were the products manufactured? What sort of energy did it use?
Obtaining reliable emissions data across your supply chain can be challenging, so it’s a wise approach to establish systems now.
Step 3: Ensure that everyone is on the same page internally
The compliance team is not the only one responsible for CBAM. Finance, supply chain, operations, and even procurement will probably need to contribute. Ensure that everyone is aware of their responsibilities, including data sharing, documentation, and verification.
To help your personnel understand the implications of CBAM, particularly the financial risks of non-compliance, do a few internal training sessions or seminars.
Step 4: Communicate with your suppliers
Your suppliers are crucial to CBAM compliance, particularly those based outside the EU. To obtain precise emissions data and guarantee openness, you will require their assistance.
Now start a discussion with them. Your life will be easier when it comes time to verify emissions or submit reports if you are more prepared.
Step 5: Arrange for self-verification
All stated emissions must be independently confirmed by certified auditors beginning in 2026. This is not something you should put off until the last minute.
To get your emissions data reviewed before deadlines, start looking into accredited verifiers right away and create a clear plan.
Look for the auditors who are already familiar with global carbon accounting standards and CBAM regulations; they will assist you in avoiding typical mistakes during the verification process.
Wrapping up
The Carbon Border Adjustment Mechanism (CBAM) is a brave step towards global decarbonisation, not just another rule. The EU is making it very evident that sustainable trading is now a must for global trade by imposing a price on carbon at the border.
Now is the moment for businesses that import into the EU. The transitional period provides an important opportunity to improve your reporting, build strong bonds with suppliers, and get your system ready for compliance and verification.
At first, CBAM could seem complicated, but with the correct planning and approach, it can be a great chance to lead rather than just conform.
Need help to understand the CBAM requirement?
Let iCustoms simplify CBAM reporting, regulatory compliance, and emission tracking for you!
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