EU CBAM Explained: The Carbon Border Adjustment Mechanism — A Complete Importer's Guide

What CBAM Is and Why the EU Created It#

The Carbon Border Adjustment Mechanism (CBAM) was introduced by EU Regulation 2023/956, entering its transitional phase on 1 October 2023. Its purpose is to prevent 'carbon leakage' — the risk that EU industries, facing carbon costs under the EU Emissions Trading System (EU ETS), lose market share to competitors in countries with weaker or no carbon pricing, or that production simply relocates to lower-regulation jurisdictions. CBAM addresses this by imposing a carbon cost on imports equivalent to what an EU producer would pay under the ETS for the same embedded emissions. It covers the direct and some indirect emissions embedded in imported goods — essentially, the carbon footprint of manufacturing those goods in the country of origin. CBAM applies at the point of import into the EU customs territory.

Which Sectors Are Covered by CBAM#

CBAM initially covers six sectors selected because they are both carbon-intensive and exposed to international competition: steel and iron (including pig iron, direct reduced iron, and a wide range of steel products), aluminium (unwrought, wrought, and downstream products including foil and tubes), cement (clinker and grey cement), fertilisers (ammonia, nitric acid, urea, potassium nitrate, mixed fertilisers), electricity, and hydrogen. The goods covered are defined by specific Combined Nomenclature (CN) codes listed in the CBAM regulation — not every product made of steel qualifies, only those CN codes explicitly listed. For example, screws and bolts are not currently in scope, but steel bars and wire rod are. The European Commission has committed to reviewing scope expansion — potentially to include downstream goods like automotive parts and machinery — from 2026 onwards.

The Transitional Phase: October 2023 to December 2025#

During the transitional phase, importers of CBAM goods must register as CBAM declarants and submit quarterly CBAM reports to the EU CBAM Transitional Registry. These reports must contain embedded emissions data for each shipment: the quantity of goods imported, their country of origin, the direct embedded emissions per tonne of goods, and any carbon price paid in the country of origin that can be deducted. Critically, no financial payment is required during the transitional phase — it is a data collection and capacity-building exercise. However, penalties for non-reporting or inaccurate reporting apply in each EU member state under national implementing legislation. The purpose of the transitional phase is to establish the data infrastructure for full implementation and to allow supply chains to develop carbon measurement capabilities.

Full Implementation from January 2026#

From 1 January 2026, CBAM enters its definitive phase. Importers must be authorised as 'CBAM declarants' — a new designation requiring registration with the national competent authority (in most member states, the customs authority). They must purchase CBAM certificates at the prevailing EU ETS carbon price, surrender certificates equivalent to the embedded emissions in their annual imports by 31 May of the following year, and submit an annual CBAM declaration instead of the quarterly transitional reports. The number of certificates required equals the embedded tonnes of CO₂ equivalent per tonne of goods multiplied by the import volume. If the exporter has already paid a carbon price in their home country, this can be deducted from the CBAM obligation — a 'carbon price paid' deduction that incentivises carbon pricing globally. The definitional implementation is phased in parallel with the phase-out of free ETS allowances to EU producers, running from 2026 to 2034.

What Importers Should Be Doing Right Now#

The actions required during the transitional phase are non-trivial: identify all goods you import that fall within CBAM CN codes; register as a CBAM declarant if you have not already done so; obtain embedded emissions data from your suppliers — this is the hardest step, as many non-EU manufacturers have never calculated their per-product carbon footprint; submit quarterly CBAM reports on time (deadlines are 31 January, 30 April, 31 July, and 31 October for the preceding quarter); and model your future CBAM cost exposure based on your import volumes and current EU ETS carbon prices. AskBiz automatically flags which of your imported goods fall within CBAM CN codes, tracks the current EU ETS price, and calculates your estimated annual CBAM certificate cost so you can plan your cost base ahead of January 2026.

• The EU Carbon Border Adjustment Mechanism (CBAM) is a carbon pricing instrument applied to imports of six goods categories: steel, aluminium, cement, fertilisers, electricity, and hydrogen.
• During the transitional phase (October 2023 – December 2025), importers report embedded emissions quarterly but do not yet pay.
• From January 2026, CBAM certificates linked to the EU carbon price must be purchased and surrendered.