EU Carbon Border Adjustment Mechanism (CBAM)
CMAMEU Carbon Border Adjustment Mechanism (CBAM)
Introduction
CBAM is the EU’s carbon border levy on imported goods. It entered into force on May 17, 2023 with a transitional reporting phase running from October 2023 to December 2025. Since January 1, 2026, CBAM is fully operational. Importers must register as authorised CBAM declarants and track embedded emissions. Certificate purchases begin in February 2027.
The mechanism currently covers cement, iron and steel, aluminium, fertilisers, electricity and hydrogen. Its purpose is to prevent carbon leakage, the risk that production shifts to countries with weaker climate rules. CBAM aligns the carbon cost of imports with the EU Emissions Trading System (ETS). As free ETS allowances for EU producers are phased out (2026–2034), CBAM certificates gradually replace them.
Who is affected
Any company importing covered goods into the EU above a 50-tonne annual threshold must register as an authorised CBAM declarant. This threshold was introduced through the Omnibus I simplification package (Regulation (EU) 2025/2083) which entered into force on October 20, 2025. The European Commission (EC) estimates it exempts the majority of small importers while still covering over 99% of emissions in scope. The threshold does not apply to hydrogen or electricity, which remain subject to CBAM obligations regardless of volume.
Importers above the threshold must report verified embedded emissions and purchase certificates to cover them. Importers who applied for declarant status by March 31, 2026 may continue importing while approval is pending. Non-EU producers are indirectly affected as EU importers will require emissions data from their suppliers.
How CBAM certificates work
Certificate sales begin in February 2027 via the EU’s Common Central Platform. Importers must purchase certificates to cover embedded emissions from their 2026 imports. For 2026 imports, the certificate price reflects the quarterly average of ETS auction prices during that year. From 2027, certificates can be purchased at any time at the weekly average of ETS auction closing prices.
From 2027, declarants must hold certificates at the end of each quarter. These must cover at least 50% of embedded emissions imported since the start of the calendar year. All certificates for 100% of the embedded emissions of a given year's imports must be surrendered by September 30 of the following year. Importers can deduct any carbon price already paid in the country of production.
Proposed scope extension and anti-circumvention measures
On December 17, 2025, the EC proposed extending CBAM to around 180 additional downstream product categories in steel and aluminium. Application would start from January 1, 2028. These include machinery, vehicle components, construction equipment, and domestic appliances. On average, the selected products contain 79% steel or aluminium by content. The proposal also strengthens anti-circumvention measures. Pre-consumer steel and aluminium scrap would be treated as a CBAM precursor, with embedded emissions assigned to it. This addresses the so-called “scrap loophole”, whereby scrap-based production routes have been used to lower CBAM liability. Legislative negotiations are ongoing.
Temporary Decarbonisation Fund
Alongside the scope extension, the EC proposed a Temporary Decarbonisation Fund. It would partially reimburse EU producers’ ETS carbon costs on exported goods at risk of carbon leakage. The Fund would be financed by 25% of Member States’ CBAM certificate revenues, covering 2026–2027 production. Eligibility requires demonstrated decarbonisation efforts. Payments would be disbursed by end 2029. This proposal is also under negotiation.
What comes next
The EC has already published on December 17, 2025 a package of eight implementing acts and one delegated act making the definitive regime operational. These cover default emission values, certificate pricing, verification and accreditation, registry rules, and free allocation adjustments. The EC also published its Review Report on the transitional period.
Several further developments are expected through 2026 and 2027:
On May 13, 2026, the EC published a draft implementing regulation on the methodology for deducting third-country carbon prices. A four-week public consultation period closed on June 10, 2026. Formal adoption is expected later in 2026.
CBAM benchmarks will be fully aligned with final ETS benchmarks by January 1, 2027.
Certificate sales begin in February 2027 via the Common Central Platform.
The first CBAM declaration and certificate surrender deadline is September 30, 2027 (for 2026 imports).
Trilogue negotiations continue on the downstream scope extension and the Decarbonisation Fund.
By December 31, 2027, the EC will present its first biennial report on CBAM implementation. This will assess potential further scope expansion to additional sectors, more downstream goods, and indirect emissions.
How we can help
Our global Sustainability and ESG team advise on CBAM compliance, including declarant authorisation, emissions reporting, and certificate management. We help importers assess exposure under the current and proposed expanded scope. We also advise on supply chain adjustments, third-country carbon price deductions, and the interaction between CBAM, ETS, and trade policy.
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