EU’s Carbon Border Adjustment Mechanism (CBAM)

The European Union’s Carbon Border Adjustment Mechanism (CBAM) is reshaping global trade. Since 1st October 2023, CBAM has been in its transitional phase, marking a major step in pricing carbon emissions on imported goods.

What is CBAM?

CBAM is the EU’s way of ensuring fair competition between:

• EU companies paying for carbon emissions under the EU Emissions Trading System (ETS), and
• Importers bringing in goods from countries with weaker climate laws.

In simple terms, CBAM puts a carbon price on imports to make sure products entering the EU face the same climate costs as those made inside it.

Why CBAM Matters

CBAM tackles “carbon leakage” — when companies move production to countries with weaker climate laws or when EU products are replaced by high-carbon imports.

By ensuring importers pay a fair carbon price, CBAM helps:

• Keep competition fair between EU and non-EU producers, and
• Support the EU’s broader climate-neutrality goals.
  
  

Who’s in scope?

For now, CBAM applies to some of the most carbon-intensive sectors:
Cement, Iron & Steel, Aluminium, Fertilisers, Hydrogen, and Electricity.

Important to note that on 20 October 2025, the EU formally published the “Omnibus I” legislative package amending the original CBAM regulation. The amendments aim to simplify the CBAM framework and make compliance more cost-efficient. Their primary goal is to ease the regulatory and administrative burden on businesses—particularly small and medium-sized enterprises (SMEs)—by streamlining procedures and reducing overall compliance costs.

A new de minimis exemption has been introduced: importers whose total annual imports of CBAM-covered goods are 50 tonnes or less per calendar year will be exempt from CBAM obligations for those goods.

The Timeline

• Transitional phase (2023–2025): Importers in scope must report the carbon emissions embedded in their products — but don’t have to pay yet.
• Definitive phase (from 1 January 2026): Importers in scope will need to buy CBAM certificates that reflect the carbon price under the EU ETS.

This means that from 2026 onward, the cost of carbon will directly impact how competitive imported goods are in the EU market.

Reporting Requirements (2023–2025)

During the current transitional phase, importers in scope must:

• Register on the CBAM Registry, and
• Submit quarterly reports showing the greenhouse gas (GHG) emissions embedded in their imported goods.
  
  

Looking Ahead

The European Commission continues to refine and simplify CBAM rules. The list of covered products may expand after 2026 to include more sectors at risk of carbon leakage.

Likely candidate sectors/products include:

• Organic chemicals & polymers (e.g., plastics)
• Other downstream goods that use the basic CBAM-covered materials (e.g., steel-intensive components)

However, the final scope, timing, and conditions for these extensions remain under discussion. Businesses in potentially affected sectors should begin preparing proactively, even in the absence of full regulatory certainty.