CBAM Explained: The Carbon Border Tax
The EU's Carbon Border Adjustment Mechanism — how it works, which sectors are covered, and what importers must do now that the definitive phase is active.
What is CBAM?
The Carbon Border Adjustment Mechanism (CBAM) — Regulation (EU) 2023/956 — is the EU's carbon border tax. It requires importers of certain carbon-intensive goods to purchase certificates covering the carbon price that would have been paid had those goods been produced under EU carbon pricing rules.
The purpose is twofold: prevent carbon leakage (where EU producers are undercut by overseas competitors who face no carbon costs) and extend the environmental logic of the EU Emissions Trading System (ETS) to the border.
The transitional phase ran from 1 October 2023 to 31 December 2025. The definitive phase is now active from 1 January 2026.
The six covered sectors
CBAM currently applies to imports in six sectors:
- Cement (CN Chapters 25, 26, 69)
- Iron and steel (CN Chapter 72, 73)
- Aluminium (CN Chapter 76)
- Fertilisers (CN Chapters 28, 31)
- Electricity (CN Chapter 27)
- Hydrogen (CN Chapter 28)
These sectors were selected because they are carbon-intensive and carry significant leakage risk. The Commission has signalled a review of scope coverage as the mechanism matures.
The 50-tonne exemption
Regulation (EU) 2025/2083 introduced a small importer exemption: any importer whose total CBAM goods imports are below 50 tonnes per year across all covered sectors is exempt from Authorised CBAM Declarant requirements.
This relieves a substantial compliance burden for smaller trading companies and occasional importers. However, if your annual imports across all six categories collectively exceed 50 tonnes, full obligations apply.
How CBAM certificates work
Under the definitive phase, importers must:
- Obtain Authorised CBAM Declarant status — applications were due by 31 March 2026 for existing importers
- Submit an annual CBAM Declaration by 31 May each year, covering the prior calendar year's imports
- Purchase CBAM certificates at a price linked to the weekly average ETS carbon price
- Surrender certificates by 30 September each year to cover verified embedded emissions from the prior year
The first certificate surrender covers 2026 imports and falls due 30 September 2027.
The certificate price is not fixed — it tracks the EU ETS carbon price, which has fluctuated between approximately €50 and €100 per tonne of CO2 equivalent in recent years.
Relationship to the EU ETS
CBAM and the EU ETS are deliberately linked. The ETS sets a price on carbon emissions for EU-based production. CBAM applies an equivalent cost to imported goods. This prevents foreign producers from gaining a competitive advantage by avoiding domestic carbon regulation.
Where a producer in a third country can demonstrate they have already paid a carbon price on the embedded emissions — through a verified national carbon pricing scheme — that cost can be deducted from CBAM obligations. This creates an incentive for trading partners to adopt their own carbon pricing mechanisms.
Embedded emissions: what must be reported
CBAM applies to embedded emissions — the carbon emitted during the production of the goods, not their transport. For most sectors:
- Direct emissions: Process and combustion emissions at the production facility
- Indirect emissions: Electricity-related emissions — mandatory for cement and fertilisers; voluntary for other sectors
Emissions must be verified by an accredited third-party verifier. Self-declared data is not sufficient under the definitive phase.
Note: CBAM's embedded emissions methodology is distinct from the carbon footprint methodology used under the Battery Regulation and ESPR. The two are not interchangeable.
What supply chain managers need to know
If your supply chain includes any of the six covered sectors, CBAM changes your supplier relationships. You will need:
- Verified emissions data from your producers, not just approximate figures
- Producer willingness to cooperate with EU verification requirements
- Budget for certificate purchases — a cost that scales directly with import volume and the ETS carbon price
Suppliers who cannot or will not provide verified emissions data create compliance risk for the importer. Building this into supplier contracts now is the practical first step.
Sources
- Regulation (EU) 2023/956, establishing a carbon border adjustment mechanism — EUR-Lex (OJ L 130, 16 May 2023)
- Regulation (EU) 2025/2083, introducing the 50-tonne annual exemption — EUR-Lex
- EC Taxation and Customs Union — CBAM implementation hub: taxation-customs.ec.europa.eu