What is CBAM? The Carbon Border Adjustment Mechanism Explained

TheCarbon Border Adjustment Mechanism (CBAM) is a European Union policy thatplaces a carbon price on certain goods imported into the EU from countries withlower or no carbon pricing. It came into legal effect through EU Regulation2023/956 and represents one of the most significant developments ininternational trade compliance in decades.

Why CBAM was introduced

TheEU has operated its Emissions Trading System (ETS) since 2005, requiringEuropean manufacturers to pay for the carbon emissions they produce. Thiscreates a cost disadvantage for EU producers competing against imports fromcountries without equivalent carbon pricing — a problem known as carbonleakage. CBAM addresses this by ensuring that imported goods carry the samecarbon cost as goods produced in Europe.

Which goods are covered

Phase1 of CBAM covers six sectors: steel and iron, aluminium, cement, fertilisers,hydrogen, and electricity. These were chosen because they are among the mostcarbon-intensive in global manufacturing and represent significant EU importvolumes. Additional sectors are expected to be brought into scope in laterphases.

Withineach sector, specific goods are identified by their Combined Nomenclature (CN)code. Not all goods within a sector are automatically in scope — it depends onthe specific CN code of the product.

Who is affected

CBAMapplies to any business that imports in-scope goods into the EU. This includesUK businesses importing these goods into EU member states. It also affectsbusinesses that supply goods to EU importers — particularly manufacturers incountries such as China, India, Turkey, Ukraine, and Russia, which are majorsources of steel, aluminium, and cement imports into Europe.

What importers must do

Importersof in-scope goods must register as Authorised Declarants on the EU CBAMRegistry. Each year, they must report the quantity of goods imported and theembedded greenhouse gas emissions associated with those goods. They must thensurrender a corresponding number of CBAM certificates — purchased at a pricelinked to the EU ETS carbon price — to cover those emissions.

The embedded emissions concept

Embeddedemissions are the greenhouse gases released during the production of importedgoods. CBAM covers both direct emissions from the manufacturing process itselfand, 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. Usingactual verified data almost always results in a lower certificate obligationthan the conservative default values.

Full obligations from January 2026

TheCBAM transitional period, which ran from October 2023 to December 2025,required quarterly emissions reporting without certificate purchase. Thatperiod 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 31 May 2027, covering the 2026reporting year.

Forbusinesses that have not yet assessed their CBAM exposure or registered as adeclarant, the time to act is now. Contact us for an initial assessment of yourobligations.

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