The EU's Carbon Border Adjustment Mechanism (CBAM)
Businesses importing carbon-intensive goods into the European Union, or selling to businesses within the EU, will have to report their carbon data to avoid fines and become non-competitive.
Click here if you import goods into the EU (Declarant)
Click here if you sell goods to the EU (Installation)
Click here if you import goods into the EU (Declarant)
Click here if you sell goods to the EU (Installation)
Introduction: Does CBAM apply to me?
If you import or sell Aluminum, Steel, Iron, Fertilizers, Electrical Energy, Hydrogen or Cement into the European Union, you are now subject to the new Carbon Border Adjustment Mechanism (CBAM), with penalties (fines) for non-compliance.
1 January 2025 marks the start of a stricter reporting phase for CBAM. Companies are now required to use the EU standardized methodology to calculate emissions.
But what is the CBAM, how will it work, and what should you do to prepare? Here’s what businesses need to know.
Click here if you import goods into the EU (Declarant)
Click here if you sell goods to the EU (Installation)
What is the CBAM regulation?
The CBAM is a new carbon regulation — a type of carbon pricing — to help the EU fight climate change.
While the existing EU Emissions Trading System (ETS) covers EU countries, the CBAM applies to goods produced outside the EU (except Iceland, Norway, Liechtenstein and Switzerland).
This addresses the problem of carbon leakage; that is, the situation where companies move the production of goods to countries with less stringent emissions policies, primarily to save costs associated with carbon pricing.
Unlike the ETS’s ‘cap-and-trade’ system, the CBAM (at least in its initial form) won’t set caps on imports or emissions, and there will be no trading of carbon permits.
What goods are applicable under CBAM?
The CBAM covers high-emitting commodities including electric energy production, cement, aluminum, fertilizers, iron, steel and hydrogen. Certain precursors and other downstream products like screws and bolts are also included. Learn how CBAM impacts metals trade (steel and aluminum).
Not sure if your good are covered?
Find out with our quick guide to CBAM products and CN codes
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What are the business implications of CBAM?
- During the transition period (until 1 January 2026), importers will face fines for not declaring emissions or for under-declaring emissions.
- The exact fines are to be determined, but will be between €10-50 per tonne of carbon dioxide equivalent not declared or under-declared.
- Until July 2024, importers can declare using default values, but after that, primary data will be needed (unless for up to 20% of precursor emissions where those are covered by CBAM) in order to avoid fines.
- For companies selling to customers in the European Union, CBAM will be in effect a tax on the goods you sell. So those that export to Europe will have to calculate their CBAM Certificate requirements, and plan to mitigate those, swallow them, or pass them on to their customers.
Timelines: What is the CBAM transitional period and CBAM definitive period?
In May 2023, the EU CBAM officially came into force. The transitional phase started on 1 October 2023 and ends on 1 January 2026. As of 1 January 2025, only the EU method for reporting greenhouse gas emissions will be accepted for imported goods.
- During the transitional period, emissions reporting is required without 'financial adjustment'.
- The permanent CBAM system will begin on 1 January 2026, when financial adjustment will be required via purchasing certificates. Free allowances for sectors covered by the EU ETS will end by 2034 (phased out from 2026). Until then, the CBAM will apply only to the proportion of emissions that does not benefit from free allowances under the EU ETS, in order to fully respect the World Trade Organisation's rules.
- As of 1 January 2025, only the EU method for reporting greenhouse gas emissions will be accepted for imported goods.
What fines are in place during the CBAM transitional period?
In the transitional period, businesses can be fined up to €50/tonne of CO2 imported and released into circulation in the EU for those that do not report, or do not report according to the right standard. The most common reason for fines being levied will be over-reliance on default values.
What do businesses have to do during the CBAM definitive period?
Businesses will have to purchase certificates depending on the amount of carbon they are importing into the European Union, with any carbon taxes paid abroad removed. The certificate purchasing scheme hasn’t been detailed, but think of this as a carbon tax that will be based on the EU ETS benchmarks to compare the carbon intensity of materials imported compared to the top 10% of lowest-carbon facilities in Europe. Essentially, CBAM will ask importers to account for the difference in carbon intensity via a taxation system.
How does the UK CBAM differ from the EU CBAM?
The UK CBAM comes into force one year after the EU CBAM. There are a few notable differences between the two, including the lack of transition period and a higher de minimis. You can read our overview of UK CBAM here.
What other countries are considering carbon border taxes?
Australia, Norway and even the United States are considering their own carbon border taxes. Serbia and Turkey are considering a tax to help reduce the CBAM burden of their businesses importing into Europe.
Example: CBAM reporting in the transitional period
Imagine you imported 1,000 tonnes of aluminum from South Africa to Rotterdam in May 2024. You'll need to:
- Make a note that this import is a CBAM-covered import;
- Ask your suppliers (producers/installations) for the emissions calculations data in line with the CBAM methodology;
- Suppliers have until July 2024 to provide importers with this data, following a calculation and communication template. Verification of this data is voluntary, but recommended, during the transitional period.
At the end of the quarter (by 31 July 2024):
- Importers will need to submit a CBAM report (calculate your exposure) to the European Commission, declaring the total greenhouse gas emissions embedded in your aluminum consignment.
- This includes emissions released in the manufacturing of the aluminum (direct emissions), certain upstream emissions and indirect emissions.
- If you imported other CBAM products in that period, you’ll need to include their emissions in the report too.
- If you can’t get primary emissions data, then you'll use the Commission’s default values (based on averages plus a markup). However, from July 2024, using default values rather than primary data will result in fines.
This process repeats every quarter. The first two reports can be updated until 31 July 2024 if the importer gets better quality data by then.
LEARN MORE
Get a detailed breakdown of the CBAM reporting requirements for importers (declarants) and sellers (installations).
Download our full CBAM 101 factsheet
Legislative process of the CBAM regulation
- 10 March 2021: The European Parliament adopted a resolution on the CBAM.
- 14 July 2021: The European Commission adopted its proposal for a CBAM.
- 22 June 2022: The European Parliament adopted its position on the CBAM.
- 10 May 2023: The co-legislators signed the CBAM regulation.
- 16 May 2023: The CBAM regulation was published in the Official Journal of the EU.
- 17 May 2023: The CBAM regulation entered into force.
- 13 June - 11 July 2023: Feedback window for implementing regulation on reporting obligations during the transitional period
- 17 August 2023: The European Commission adopted the rules governing the implementation of the CBAM during its transitional phase
- 1 October 2023: The CBAM transitional period officially began.
- 1 January 2025: Only the EU method for reporting greenhouse gas emissions will be accepted for imported goods marking the start of stricter reporting requirements.
CBAM Declarants Hub
What is a CBAM Declarant?
A CBAM Declarant is a corporate entity that imports at least €150 worth of steel, aluminium, fertilizer, hydrogen, electricity or cement into the European Union. These businesses are required to “declare” their carbon imports for the year to the EU and purchase equivalent certificates. Even multinationals or businesses headquartered in other geographies may be declarants if one of their subsidiaries are headquartered in Europe and they are importing goods for free circulation into the EU.
How do I know if I have to complete a CBAM report?
Look at the list of published CN Codes, which are the goods which are covered under CBAM. Identify any of those products that you have purchased, and imported into Europe, at a value of at least €150. If you have imported any of these above the price benchmark, you are required to file a CBAM submission.
What information do I need to provide to comply?
The information required for your CBAM report can be found in the CBAM template. It largely covers company information, supplier information, and any electricity and fuel usage in your facilities.
What information do I need to request from my suppliers for CBAM?
You will need to request data on the embedded emissions of your suppliers’ goods, which includes fuel and electricity usage in the creation of the goods, and any precursor emissions from purchased materials.
What are the long-term pricing implications of CBAM?
CBAM will create a carbon pricing dynamic where lower-carbon goods, with a lower CBAM tax, will be sold at a premium to European businesses, and higher-carbon goods will be sold at a discount to reflect the CBAM price. Savvy procurement teams can look to benefit from this carbon pricing dynamic by locking in low-carbon or alternative supply chains.
CBAM Installations Hub
What is a CBAM Installation?
A CBAM Installation is a manufacturing facility that sells to customers inside the European Union to a value of at least €150, and as such will need to provide carbon data to their customers to enable them to accurately report to the EU.
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How do I know if I have to provide CBAM data to my customers?
Your customers will typically ask for CBAM data if they require it. If the goods you produce are in the list of CN Codes provided by the EU, you will need to provide CBAM data. If you are unable to provide this data, your customer will be at risk of fines, and may be forced to seek new suppliers who can provide them with the CBAM data they need.
What information do I need to provide about my company to comply with CBAM installation reporting requests?
You will need to provide information about your facilities, including location, as well as about the fuel and electricity consumed in the manufacturing of your CBAM-applicable goods. You will also need to provide the details of precursor suppliers.
What information do I need to request from my precursor suppliers for CBAM?
The same information as you will provide about your own manufacturing facilities. The goal of CBAM is to provide the full account of embedded emissions, and as such all key precursors are required to share data.
How will CBAM affect the price of goods in the long term?
The largest impact for installations is that if they are unable to report CBAM information, or report inaccurately, their customers will be fined, leading to them finding alternative suppliers. Moreover, if the goods you manufacture are higher-carbon than the stated benchmarks, your goods will be taxed at a greater rate than lower-carbon goods, leading to increased prices for your customer and potentially your products becoming prohibitively expensive. This may lead to loss of customers or margin, as your customers pass some of the taxation cost back onto your business.
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Speak to a CBAM expertFAQs
Is CBAM a tax?
The CBAM is not officially a carbon tax. However, from 2026 it will function in similar ways to a carbon tax, by requiring companies to make financial payments (or 'adjustments') according to the greenhouse gas (GHG) emissions embedded in their imports of aluminum, steel, fertilizers, electrical energy, hydrogen and cement. Importers will report these emissions, then purchase and surrender CBAM certificates at the same cost per tonne of carbon dioxide equivalent as the average EU ETS carbon price for the past week.
Has CBAM been passed?
The CBAM regulation has been officially passed and has entered into force. It was published in the Official Journal of the EU on 16 May 2023. The transitional phase will begin on 1 October 2023 and the permanent system enters into force on 1 January 2026.
What sectors are included in CBAM?
The CBAM covers high-emitting commodities including electric energy production, cement, aluminum, fertilizers, iron, steel and hydrogen. Certain precursors and other downstream products like screws and bolts are also included. Learn how CBAM impacts metals trade (steel and aluminum).
Not sure if your goods are covered by EU CBAM?
What is the difference between the EU ETS and the CBAM?
The EU Emissions Trading System (ETS) sets a cap on the amount of greenhouse gas (GHG) emissions that can be released from industrial installations in certain sectors within the EU. Allowances are bought on the ETS trading market.
The CBAM complements the EU ETS by covering goods imported from outside the EU. When fully phased in, will cover more than half of the emissions in ETS-covered sectors. Unlike the ETS, there will be no 'cap and trade' system under the CBAM.
The CBAM certificate prices will mirror the EU ETS price (averaged on a weekly basis).
Which indirect emissions are included in the EU CBAM?
During the transitional period, importers must report the indirect emissions of all goods.
After the transitional period (from January 2026), a carbon price will apply to indirect emissions from the following goods:
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Explore our analysis of the costs of the CBAM with and without indirect emissions for aluminum and steel.
Which upstream emissions are included in the EU CBAM?
In the CBAM transitional period implementing regulation, upstream emissions are included for certain goods only: i.e. complex goods.
The difference between a simple and complex good under the EU CBAM:
A simple good doesn’t have any embodied emissions from upstream materials or energy sources. The only emissions associated with a simple good are those directly related to its production process.
A complex good on the other hand does have some embodied emissions from upstream materials.
In the case of aluminum, aluminum ingot is a simple good: emissions from the production of bauxite, alumina, anodes, and all other materials and energy used in the production of the ingot are not included in the calculation of carbon emissions.
Products that use aluminum ingot as an input are complex goods: the production of the ingot needs to be included in the calculation of the carbon emissions associated with these products.
Who are the CBAM national competent authorities?
National Competent Authorities (who can authorise importers as CBAM declarants) are provisionally as follows, as of 21 December 2023. Contact details and more information are available here.
Office for the National Emissions Trading System, Customers Authority (Austria)
Federal Public Service for Health, Food Chain Safety and Environment (Belgium)
Executive Environment Agency (Bulgaria)
Ministry of Agriculture, Natural Resources and Environment (Cyprus)
Ministry of the Environment (Czech Republic)
Danish Energy Agency (Denmark)
Environmental Board (Estonia)
Ministry for Ecological Transition and Demographic Challenge (Spain)
Customs Authority (Helsinki)
Département de lutte contre l’effet de serreDirection Générale de l’Energie et du Climat (DGEC) | Ministère de la Transition écologique et cohésion desterritoires (France)
General Directorate of the Financial and Economic Crime Unit | Ministry of National Economy and Finance (Greece)
Customs Administration, Ministry of Finance (Croatia)
National Climate Protection Authority (HU)
Environmental Protection Agency (Ireland)
Ministry of Environment and Energy Security (Italy)
Administration de l’environnement (Luxembourg)
Valsts ieņēmumu dienestsState Revenue Service (Latvia)
Malta Resources Authority (Malta)
Dutch Emissions Authority (The Netherlands)
National Centre for Emissions Management (Poland)
Portuguese Environment Agency (Portugal)
Ministry of Finance (Romania)
Swedish Environment Protection Agency (Sweden)
Ministry of Environment of the Slovak Republic (Slovakia)
Is the EU CBAM the same as the UK CBAM?
The UK CBAM is a separate but similar mechanism to address carbon leakage. Learn more about the UK CBAM.
Can default values be used for CBAM reporting?
Official default values for CBAM are now available on the transitional registry. These are global average values for each CN (product) code.
Key things to note:
- Importers can use these defaults if suppliers don’t provide data until 31 July 2024 (i.e. for the first three reporting quarters)
- Suppliers can use default values for 100% of emissions until 31 July 2024 (same as importers) and long term if those default values make up less than 20% of emissions (in practice, this means using them for precursor goods when the installation makes complex goods)
- Other default values (i.e. not from the CBAM registry) can be used on the condition that the reporting declarant indicates and references the methodology followed for establishing such values
- The EU aims to set default values higher than the average actual values, in order to encourage the use of actual values in reporting
What are the fines and penalties in the EU CBAM?
During the transition period (until 1 January 2026), importers will face fines for not declaring emissions or for under-declaring emissions.
The exact fines are to be determined, but will be between 10-50 euros per tonne of carbon dioxide equivalent not declared or under-declared.
Until July 2024, importers can declare using default values, but after that, primary data will be needed (unless for up to 20% of precursor emissions where those are covered by CBAM), in order to avoid fines.
Are Scope 3 emissions included in the EU CBAM?
The EU CBAM does not use the categories of Scopes 1, 2 and 3. Therefore it can be misleading to talk about Scope 3 emissions being included in CBAM. However, certain emissions that fall under the Scope 3 category are included in specific ways.
CBAM classifies emissions as either direct emissions or indirect emissions, while traditional corporate carbon accounting classifies emissions by Scopes.
In CBAM, direct emissions refer to emissions from the facility’s own operations, while indirect emissions refer to the generation of electricity to produce goods in that facility (whether that electricity is generated on-site or off-site).
💡 Note: under the ‘Scopes 1, 2 and 3’ framework, on-site generation of electricity is categorized as Scope 1 (direct) emissions, not Scope 2. This can be a source of confusion for companies who have already calculated emissions according to Scopes or who use ‘direct emissions’ synonymously with Scope 1.
For so-called complex goods, additional upstream emissions (outside of electricity generation) are also included under CBAM: specifically, emissions involved in the processing of raw materials that are used as inputs to make those complex goods.
Those emissions do fall under the Scope 3 category of standard carbon accounting. For example, in the case of steel sheets, the emissions of precursor goods like sinters and pellets need to be included in CBAM reporting, and are part of the steel sheet's Scope 3.
However, the category of Scope 3 emissions includes many more emissions sources than just the direct processing of precursor goods. Therefore, CBAM counts fewer emissions than a full Scope 3 accounting exercise would, even in the case of complex goods.
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