What is CBAM?

The Carbon Border Adjustment Mechanism is a carbon pricing tool implemented by the EU to help enable its low carbon transition and avoid carbon leakage (a scenario where producers move production outside of the EU to avoid climate-related policies and import carbon-intensive goods back to the EU). CBAM is effectively a carbon tax or import duty on selected goods, based on the embedded greenhouse gas emissions of imported goods.

Importers of CBAM goods will be required to report the emissions associated with their imported goods and eventually pay for ‘CBAM certificates’. The price of these certificates will be linked to the carbon price under the EU’s Emissions Trading System (ETS).

Under CBAM, EU businesses will need to understand and declare the embedded emissions of the goods they import. It expands carbon pricing beyond the EU ETS, creating a level playing field between suppliers inside and outside the EU.
 

Who will be impacted?

CBAM focuses on carbon-intensive commodities, meaning any business that imports or exports these goods to the EU will be affected, either directly or indirectly. Importers of these goods will need to declare under CBAM. Consequently, customers in the EU will request carbon data for the products they purchase directly from their non-EU suppliers.

Currently, CBAM applies to aluminium, cement, electricity, fertiliser, hydrogen, iron and steel. Its coverage, however, may expand over time.

CBAM, therefore, casts a wide net:

1. A car manufacturer in Germany that imports aluminium from China for its car production.
2. A Danish offshore wind developer that predominantly uses imported iron and steel from South Africa to produce wind turbines.
3. A company based in Brazil that supplies fertiliser to Romania.
4. An Algerian cement producer that exports cement to French construction companies.
5. A company in Mexico that supplies hydrogen to various EU customers.

What does this mean for EU importers?

CBAM is mandatory for all EU businesses. Now in its transition phase, CBAM requires any business importing goods into the EU to understand the embedded emissions associated with each imported product and declare these in quarterly reports. No carbon levy will be paid on imports until 1 January 2026, and fines for excess emissions, alongside other penalties, will come into force.

A reporting timeline.

From 1 January 2026, importers will need to declare the embedded emissions of their imports and surrender CBAM certificates as an allowance in response. CBAM certificates will mimic ETS certificates' weekly average auction price, creating a level playing field between suppliers inside and outside of the EU.

To ensure emissions are not double charged, CBAM includes provisions for carbon taxes and emissions trading systems outside of the EU. For example, if importers can prove a carbon price has already been paid during production, such as South Africa’s or Chille’s Carbon tax, the corresponding amount will be deducted. In summary, EU importers will have to:

1. Identify the imported goods that fall under CBAM.
2. Select the calculation methodology and emissions factors to calculate the emissions.
3. Declare the quantity of material.
4. Declare the direct and indirect emissions embedded in imports.
5. Assess if goods are already carbon priced in the country of production or purchase. If so, report the carbon price that is due or has been paid for the embedded emissions in the country of origin
6. Purchase the corresponding number of certificates.

Importers will need to work closely with their suppliers outside of the EU and ask for the upstream emissions or the carbon footprints of each product they purchase to pay the correct carbon price under CBAM.
 

Reporting requirements

Since 1 January 2025, the methods for calculating imported emissions have become more stringent. Importers will need to report on the emissions from imported goods and attribute emissions to the individual supplier, the goods, and the quantity of material imported. EU-based companies will have to report these emissions in one of two ways: the calculations-based approach and the measurement-based approach.

• The calculations-based approach determines emissions from source streams using either:
  • activity data (e.g., the amount of electricity or diesel used during production) and relevant emission factors, or
  • a mass-balance approach, estimating emissions from production by comparing the carbon content of all the inputs and outputs of the production process.
• The measurement-based approach measures greenhouse gas concentrations and flow of flue gases directly at the manufacturing plant, to determine emissions from the production of a good.

If EU companies do not receive supplier-specific data, they can use default values to estimate their emissions. Default values represent the average emissions for producing one tonne of a given product in the country of origin and can be used to estimate embedded emissions. However, these default values are inherently conservative and will report higher emissions in the products than primary supplier data, which offers a more precise picture. It is therefore recommended that actual data on imports from suppliers is gathered, as this will not only lead to more comprehensive insights into the supply chain but will also likely save costs once CBAM certificates come into play.
 

What does this mean for exporters to the EU?

CBAM calls for businesses within the EU to invest in the decarbonisation of their supply chains. This will push EU businesses to consider the advantages and disadvantages of choosing suppliers outside of the EU based on the emissions intensity of their suppliers.

Exporters will likely be expected to provide emissions data for their products to their customers in the EU, to support their customers’ reporting obligations. While exporters will not have to pay for CBAM certificates directly, they will be impacted indirectly via reduced price competitiveness of their carbon-intensive goods in the EU market. In other words, the same goods produced in the EU could be cheaper than those being imported because of CBAM, thereby, reducing the price competitiveness of exporters.

To meet customer demand and remain competitive in the EU market, exporters will need to provide emissions data of their products to EU customers and start to minimise their embodied emissions. This provides exporters an opportunity to innovate and offer more low carbon, energy- efficient products that are more attractive under CBAM rules.

How the Carbon Trust can help

With over 20 years of carbon expertise, the Carbon Trust helps businesses calculate their organisational and value chain emissions (Scope 1, 2 and 3 emissions) as well as product carbon footprints. We assist you in assessing the potential impact of climate risks and opportunities, such as the EU’s CBAM, and help you develop decarbonisation strategies to reduce your emissions and remain competitive in an increasingly low carbon, global economy.

As CBAM focuses on the carbon emissions embedded in products, our product carbon footprinting services cover the requirements of CBAM. They also give you further insight into the emissions of the products you export, their emission hotspots and reduction opportunities.

Our Europe policy experts deliver internal workshops for your team. From the business implications of CBAM, to the technical and reporting requirements, to the processes required needed to fulfil your CBAM obligations, we share advice on data collection, emissions mapping, and key areas to focus on when collecting data from suppliers.