The EU's Carbon Border Adjustment Mechanism (CBAM)

What is the EU CBAM, how will it work, and how should businesses prepare? Here’s what you need to know.

Do you import aluminum, steel, iron, fertilizers, electrical energy, hydrogen or cement into the EU? Are the goods produced outside the EU?

Your imports are now subject to the new Carbon Border Adjustment Mechanism (CBAM), with penalties (fines) for non-compliance.

But what is the CBAM, how will it work, and what should you do to prepare? Here’s what businesses need to know.

What is the CBAM?

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 will apply 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’ll be no trading of carbon permits.

How the CBAM works

If you import these goods into the EU and they're produced outside the EU, the new CBAM will apply: Aluminum, Steel and iron, Fertilizers, Electricity, Cement, Hydrogen
From October 2023, importers will have to report the emissions of those goods to the EU under CBAM. From January 2026 importers will have to pay a carbon price for those emissions.
The CBAM will apply to imports from all non-EU countries (including the UK) but excluding Iceland, Norway, Liechtenstein and Switzerland
There will be penalties for non-compliance. Importers should plan now for supply chain carbon accounting

EU CBAM Timeline: What is the transitional period?

The European Commission has agreed that the CBAM's transitional phase starts on 1 October 2023 and ends on 1 January 2026.

  • During the transitional period, emissions reporting is required without 'financial adjustment'.
  • On 1 January 2026, financial adjustment will be required through certificate purchasing. 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.

Example: CBAM reporting in the transitional period

It’s November 2023 and you’re importing 1,000 tonnes of aluminum from South Africa to Rotterdam. 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 January 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 January 2024):

  • Importers will need to submit a CBAM report 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. Moreover, these default values could be higher than the actual emissions, and from 2026 you’ll have to pay that price (you'll purchase one CBAM certificate for each tonne of reported direct emissions, at the cost of the latest weekly average ETS carbon price).

This process repeats every quarter (30 April 2024 for the second report). The first two reports can be updated until 31 July 2024 if the importer gets better quality data by then.

Free EU CBAM factsheet; get a detailed breakdown of the CBAM requirements for importers and installations
Get a detailed breakdown of the CBAM requirements for importers and installations.
Download our full CBAM 101 factsheet
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Legislative process of the CBAM

  • 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.

Preparing for CBAM

How CarbonChain can help with CBAM

Complete your carbon reporting and engage with suppliers on CarbonChain's trusted carbon accounting platform. Our new dedicated CBAM solution includes:

CBAM Reporting Software:

Measure and report CBAM emissions with confidence:

  • For importers: Use CarbonChain's software to track CBAM imports, get the supplier emissions data you need and complete your CBAM reports;
  • For installations: Implement CBAM-approved emissions monitoring methodology and report to customers on time.

CBAM Financial Adjustment Software:

A product’s emissions can vary hugely between different countries and production facilities. Quantify the upcoming cost of the CBAM and start decarbonizing your supply chains:

  • Compare current and potential suppliers and installations;
  • Identify lower-carbon installations to secure multiyear procurement contracts.

Get CBAM-ready with CarbonChain

Preview carbon accounting software for CBAM reporting and emissions measurement. Platform for importers and installations
Prepare for reporting, engage suppliers and manage CBAM costs on one platform.
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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 likely to be included.

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 indirection emissions of all goods.

After the transitional period (from January 2026), a carbon price will apply to indirect emissions from the following goods:

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 17 November 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?

Default values for CBAM will be made available on the transitional registry by end of 2023. These are global average values for each CN (product) code.

4 key things to note:

  1. Importers can use these defaults if suppliers don’t provide data until 31 July 2024 (i.e. for the first three reporting quarters)
  2. 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)
  3. 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
  4. 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.