What is CBAM? The Carbon Border Adjustment Mechanism Explained
The Carbon Border Adjustment Mechanism (CBAM) is a European Union policy that places a carbon price on certain goods imported into the EU from countries with lower or no carbon pricing. It came into legal effect through EU Regulation 2023/956 and represents one of the most significant developments in international trade compliance in decades.
Why CBAM was introduced
The EU has operated its Emissions Trading System (ETS) since 2005, requiring European manufacturers to pay for the carbon emissions they produce. This creates a cost disadvantage for EU producers competing against imports from countries without equivalent carbon pricing — a problem known as carbon leakage. CBAM addresses this by ensuring that imported goods carry the same carbon cost as goods produced in Europe.
Which goods are covered
Phase 1 of CBAM covers six sectors: steel and iron, aluminium, cement, fertilisers, hydrogen, and electricity. These were chosen because they are among the most carbon-intensive in global manufacturing and represent significant EU import volumes. Additional sectors are expected to be brought into scope in later phases.
Within each sector, specific goods are identified by their Combined Nomenclature (CN) code. Not all goods within a sector are automatically in scope — it depends on the specific CN code of the product.
Who is affected
CBAM applies to any business that imports more than 50 tonnes a year of in-scope goods into the EU, or any quantity of hydrogen or electricity. This includes UK businesses importing these goods into EU member states. It also affects businesses that supply goods to EU importers — particularly manufacturers in countries such as China, India, Turkey, Ukraine, and Russia, which are major sources of steel, aluminium, and cement imports into Europe.
What importers must do
Importers of in-scope goods must register as Authorised Declarants on the EU CBAM Registry. Each year, they must report the quantity of goods imported and the embedded greenhouse gas emissions associated with those goods. They must then surrender a corresponding number of CBAM certificates — purchased at a price linked to the EU ETS carbon price — to cover those emissions.
The embedded emissions concept
Embedded emissions are the greenhouse gases released during the production of imported goods. CBAM covers both direct emissions from the manufacturing process itself and, in some cases, indirect emissions from the electricity used in production. Importers can use verified actual emissions data from their suppliers, or fallback on default benchmark values published by the European Commission. Using actual verified data almost always results in a lower certificate obligation than the conservative default values.
Full obligations from January 2026
The CBAM transitional period, which ran from October 2023 to December 2025, required quarterly emissions reporting without certificate purchase. That period is now closed. From 1 January 2026, the full CBAM regime applies. Importers must hold sufficient CBAM certificates and surrender them annually. The first certificate surrender deadline is 30 September 2027, covering the 2026 reporting year.
For businesses that have not yet assessed their CBAM exposure or registered as a declarant, the time to act is now. Contact us for an initial assessment of your obligations.