FAQ: The Carbon Border Adjustment Mechanism (CBAM)
These frequently asked questions will help you to understand the carbon border adjustment mechanism, how it will affect your organisation both now and in the coming years and the actions you need to take to prepare.
What is the Carbon Border Adjustment Mechanism (CBAM)?
Why has CBAM been introduced?
Who will be affected by CBAM?
How is the CBAM different to the EU Emissions Trading Scheme (ETS)?
What sectors are covered in the scope of CBAM?
What is the timeline for CBAM?
How is the CBAM different to the EU Emissions Trading Scheme (ETS)?
How does CBAM reporting work?
What do I need to report as an importer of CBAM goods?
When is the first report and payment due and what is the reporting cycle?
As an importer, how do I calculate my emissions data for CBAM with primary or default values?
What information do operators need to monitor?
Are there any exemptions from CBAM?
Are there similar or aligned regulations in other parts of the world?
What’s likely to happen next with CBAM?
What opportunities can CBAM bring to my organisation?
What is the best approach to mitigate the impacts of CBAM?
Further support and information
What is the Carbon Border Adjustment Mechanism (CBAM)?
The Carbon Border Adjustment Mechanism is a carbon pricing system recently introduced by the EU that will impose a fee on a range of carbon-intensive goods imported into the EU.
Under the CBAM regulations, EU importers will need to report the upstream emissions for certain imported goods, and purchase carbon certificates equal to the carbon price they would have paid if the goods had been produced under the EU Emission Trading System (ETS).
If a non-EU producer can demonstrate that they have already paid a price for the carbon used in the production of the imported goods in a third country, the corresponding cost can be deducted from the EU importer's CBAM payment obligation.
Why has CBAM been introduced?
As the EU increases its efforts to address climate change, whilst less stringent climate regulations persist in non-EU countries, there is a potential for ‘carbon leakage’. Carbon leakage occurs when producers in the EU relocate their carbon-intensive production activities to countries with less stringent climate policies, or when products previously produced in the EU are replaced by equivalent carbon-intensive imports.
The CBAM is being introduced to achieve carbon cost parity between imported and domestically produced goods and to maintain competitiveness with the EU's trade partners. The overarching aim is to reduce carbon emissions inside and outside the EU.
The objectives of the CBAM are:
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To prevent carbon leakage by discouraging companies from relocating to countries with weaker environmental regulations
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To reduce global carbon emissions and support international goals by ensuring trade does not undermine climate commitments
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To replace the free allocation within the EU Emissions Trading Scheme (ETS) as they are progressively phased out
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To promote equal opportunities between the EU and its trading partners, ensuring that the combined application of the EU ETS and CBAM results in no more favourable treatment for Union goods compared to imported goods
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To protect EU companies that have invested in green technologies, encouraging decarbonisation and innovation
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To encourage increased climate ambition in other countries, rewarding reductions in embedded emissions for imports with lower carbon cost
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To promote the implementation of carbon market policies in non-EU countries (to keep revenues within producer countries)
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To generate revenue that could be used to support climate policies in the EU or other countries
Who will be affected by CBAM?
CBAM will likely affect most sectors and markets in a myriad of ways depending on the response by governments, producers and consumers, both inside and outside the EU. Organisations will need to carefully consider their response - with CBAM impacts ranging from changes in costs to the need for developing and deploying new monitoring and reporting systems across the supply chain. Stakeholders most affected by CBAM in the medium term include:
- EU Importers: Companies within the EU that import CBAM-covered goods into the EU and are classified as authorised CBAM declarants. EU importers will be required to report the upstream emissions for the relevant imported goods, and purchase carbon certificates equivalent to the carbon price that they would have paid if the imported goods had been produced under the EU's ETS.
- Non-EU Operators: Producers (“operators”) outside of the EU that produce CBAM-covered goods and sell them to the EU. Non-EU operators are responsible for monitoring and reporting the embedded emissions of the goods which have produced and will export to the EU. These producers must engage with accredited third-party verifiers to confirm the accuracy of their emissions reports.
- EU Consumers: Companies within the EU that don’t import CBAM-covered goods themselves but utilise those goods as product or process inputs in their operation. Although these organisations won’t be affected by carbon monitoring, reporting, or certificate requirements, the carbon fee imposed on imported goods may increase the cost of their input materials.
- Targeted Industrial Sectors: Basic goods from energy-intensive sectors represent the bulk of CBAM-related trade. These sectors are iron and steel, fertilisers, cement, aluminium, hydrogen, and electricity.
How is the CBAM different to the EU Emissions Trading Scheme (ETS)?
The ETS, established in 2005, sets an annual cap on greenhouse gas (GHG) emissions for companies in certain sectors. This cap gradually decreases over time to reduce carbon emissions and encourage decarbonisation initiatives. In-scope companies either receive free emission allowances or buy them up to the cap limit. Any unused allowances can be sold or used in the subsequent year. The cap is gradually reduced over time to ensure emission reductions.
CBAM is a supplementary measure to the ETS, that imposes charges on the embedded carbon of in-scope imports. The CBAM charge is equal to the charge imposed on non-imported goods under the ETS although adjustments may be made according to any mandatory carbon prices in the originating (non-EU) country.
In effect, CBAM ensures the same carbon price is paid for imports (via CBAM) as for equivalent products originating from within the EU (via ETS).
CBAM obligations will be gradually phased in for EU importers as ETS free allowances are gradually phased out for EU producers, with the goal of driving down overall carbon emissions.
What sectors are covered in the scope of CBAM?
CBAM applies to EU imports of iron, steel, aluminium, electricity, certain fertilisers, cement and hydrogen, as well as certain precursors (i.e. cathode active materials) and a limited number of simple downstream products such as screws and bolts. The scope of CBAM also extends to the precursors used in the production process of the goods listed above, provided they aren’t specifically exempt.
The Commission has scheduled a 2027 report to evaluate extending the scope of CBAM to other sectors, specifically chemicals and polymers, which are at high risk of carbon leakage. This expansion could be horizontal (widening the scope to include new sectors) and/or vertical (deepening the scope to include upstream and downstream goods).
What is the timeline for CBAM?
Transitional Period, October 2023 - December 2025
CBAM reporting obligations take effect but are restricted to reporting and focused on a limited number of goods.
This phase is intended to allow operators, importers, EU member states and the European Commission to develop and refine necessary processes.
- 2026: Beginning of the definitive period. CBAM payment obligations begin to be phased in at the same pace as EU ETS free allowances are phased out in sectors covered by the CBAM (over an eight-year period). During this phase, only authorised CBAM declarants are permitted to import covered goods into the Union. Importers who applied for authorisation by March 31, 2026, may provisionally continue to import goods while awaiting a final decision from competent authorities.
- 2027: Full financial implementation, with weekly certificate pricing, certificate sales and repurchasing through the Common Central Platform starting on February 1, 2027. Quarterly purchasing obligations come into force, with the first declaration and surrender of CBAM certificates due by September 30, 2027.
- 2034: The CBAM final adjustments will fully apply as the phase-out of ETS free allowances is completed.
Evaluation and Expansion Roadmap (2026 and beyond)
Alongside the definitive period, the Commission is carrying out an ongoing evaluation of the regulation, considering possible scope expansion.
- Step 1 (2026-2027): The Commission is advancing proposals for the downstream extension limited to specific steel and aluminium-intensive products. New anti-circumvention measures and amended rules for calculated embedded mechanisms in electricity are expected to be addressed. CBAM benchmarks are scheduled for revision to align with new ETS benchmarks.
- Step 2 (2027 and beyond): The deadline for a systemic review of default value and mark-ups is in 2027, alongside a report to assess extending the CBAM to indirect emissions for all sectors and adding further sectors like chemicals and polymers. Following the 2027 review, the Commission will present application reports to the European Parliament and the Council every two years, starting from January 1, 2028.
How does CBAM reporting work?
Operators report to importers, while importers report to relevant national authorities, who in turn report to the European Commission.
Importers are the central stakeholders responsible for collecting relevant information on carbon emissions, ensuring its accuracy, and reporting it to the competent authority in the EU Member State where the goods pass through EU customs. Reporting will be done by a reporting declarant, who may be the importer themselves or an appointee of the importer. While upstream operators, suppliers and producers located outside the EU have the responsibility to provide carbon-related data to EU importers, it remains the responsibility of importers to ensure they receive this data from their suppliers, and that it is validated.
Reporting is centralised through the CBAM Registry, an electronic platform that manages authorisations, emissions data, and communications between the Commission and declarants. Non-EU operators can register in a dedicated Operators Portal to upload installation data once, allowing it to be shared with multiple importers to reduce administrative duplication.
What do I need to report as an importer of CBAM goods?
During the definitive period, importers are required to submit an annual CBAM declaration through the centralised CBAM registry. These will include:
- Administrative and Installation Identify: This includes identification data such as the EORI number of the declarant and the unique CBAM account number, and origin details including the name of the operator, the installation's unique identifier, and its precise geographical coordinates.
- Goods and Quantity Data: This includes the classification (CN code) for each imported good, and the mass and volume of imports, measured in functional units (e.g., tonnes for steel/aluminium, kWh for electricity, or kilograms of nitrogen for fertilisers).
- Detailed Emissions Metrics: This includes carbon intensity in the form of specific direct and indirect embedded emissions (in tonnes of CO2e per functional unit), the calculation method outlining whether actual monitoring data or default values were used, and precursor tracking for all consumed precursors.
- Verification and Financial Adjustments: This requires that a verification report be issued by an accredited third-party verifier for all actual values reported, documentation of any carbon price effectively paid in the country of origin to allow for financial deductions, and data required to calculate the free allocation adjustment to ensure the border price reflects only the costs not already covered for EU producers.
Installation operators are responsible for monitoring and reporting to the importer the total embedded emissions, total indirect emissions, and relevant carbon prices in the country of origin. Having this capability will make operators like producers and suppliers significantly more attractive to EU importers.
When is the first report and payment due? And what is the reporting cycle?
Financial liability for CBAM begins in 2027, covering embedded emissions of goods imported in 2026. While the transitional phase (October 2023 – December 2025) required quarterly reporting without financial obligations, the definitive period beginning January 1, 2026, introduces the requirement to purchase and surrender CBAM certificates.
First Payment and Deadlines
- Certificate Sales Start: The sale and repurchase of CBAM certificates are scheduled to commence on February 1, 2026. The sale and repurchase of CBAM certification are carried out through the Common Central Platform. These certificates shall be surrendered via the CBAM registry by 31 May each year, starting in 2027, for the embedded emissions of imports that occurred in 2026.
- Payment Mechanism: Importers ‘pay’ for their CBAM cost obligations by purchasing and then surrendering the number of certificates that correspond to the verified emissions of their imports, minus adjustments for any carbon price paid in the country of origin.
- Mandatory Quarterly Holdings: From January 1, 2027, declarants must ensure that at the end of each quarter, their CBAM account contains a minimum of 50% of the certificates required to cover emissions for the year's imports to date.
Reporting Cycle
- First Declaration Deadline: Authorised declarants must submit their first annual CBAM declaration for the 2026 reporting period by September 30, 2027.
- Annual Reporting Period: The standard reporting period corresponds to the calendar year during which the goods were produced, with annual reports due September 30th annually. Goods are presumed to have been produced in the same year as their import.
- Pricing Cycle: In 2026, certificate prices are calculated based on quarterly averages of EU ETS allowance prices. Starting in 2027, the cycle shifts to a weekly average to more closely mirror the EU ETS market.
As an importer, how do I calculate my emissions data for CBAM with primary or default values?
Actual, verified emissions data or default values can be used when calculating embedded emissions for reporting.
Using primary (actual) data
The operator of the production facility provides this data. The ideal scenario is the creation of a central database for operators in third countries to provide importers with verified emissions data thereby facilitating reporting.
The operator can use one of the following two options:
- The “calculation-based” approach uses the quantities of all fuels and relevant materials consumer, and corresponding “calculation factors” to estimate emissions. Particularly relevant is the “emission factor” which is based on the carbon content of a fuel or material.
- The “measurement-based” approach requires the operator to measure the concentration of the greenhouse gases and the flow of the flue gas for each emission source.
As long as they result in similar emissions coverage and accuracy, the operator can use alternative methods during the introductory phase of the transitional period (until 31 July 2024) if they are approved for emissions monitoring in their jurisdiction.
Using default value data
The alternative methods mentioned above include using the default values which are published by the European Commission.
These default values reflect average emissions intensities of each exporting country and for each good - with a mark-up to ensure environmental integrity. The size of this mark-up will be informed by the data collected during the transitional period. Where reliable average data isn’t available, the Commission will use the average emissions intensity of the 10% worst performing EU ETS installations for that type of good. This mark-up increases from 10% in 2026 to 30% by 2028 in some sectors to ensure that emissions are not underestimated.
Note that default values may be higher than actual emissions, and importers will have to pay that price. There are, therefore, substantial potential gains to applying rigorous strategy and carbon accounting to evidence lower supply chain emissions. For complex goods, if you have actual values for the production process but lack data for a specific precursor, you can use actual values for the process and default values for that precursor.
What information do non-EU operators (producers) need to monitor?
To allow importers to move away from conservative default values, non-EU operators must provide actual embedded emissions values within the system boundary for each production process (without this data, importers must use default values). The system boundary covers:
- Direct emissions
- Indirect emissions from electricity consumption
- Embedded emissions of all precursors
Non-EU operators must monitor:
- Greenhouse gas emissions originating from directly or indirectly linked production processes, including combustion and industrial chemical reactions.
- The energy consumed during the production process to ensure the accuracy of indirect emissions calculations.
- Recursively account for the emissions of input materials (precursors) that are also within the CBAM scope for ‘complex’ goods.
Operators must maintain a monitoring plan that documents all technologies, calculation formulae, and measurement system locations used. This is required, along with a transparent record of all relevant data and supporting documents for at least 6 years after the reporting period, and the monitoring of the uncertainty of their measurement systems.
Having systems in place to report this information to customers will make operators like producers and suppliers significantly more attractive to EU importers.
Are there any exemptions from CBAM?
The CBAM provides for several specific exemptions based on the nature of the goods, the volume of imports, the geography of origin, and the intended use of the product. These are:
- Small-Scale Import Exemptions (De Minimis): There is a 50-tonne annual threshold. This threshold exempts approximately 90% of importers (primarily small and medium-sized enterprises) from reporting and financial obligations.
- Geographical and Policy Exemptions: Countries or territories with carbon pricing systems deemed equivalent in stringency to the EU ETS are largely exempt from CBAM payments. This includes members of the European Economic Area (EEA) and the European Free Trade Association (EFTA) countries, such as Switzerland.
- Use-Based and Special Category Exemptions: Specific types of activities and geographic origins related to the continental shelf of the exclusive economic zone (EEZ) are excluded from the regulation. Examples of this are goods used for military activities, offshore generation, and offshore hydrogen.
- Sector-Specific and Emission Type Exemptions: Some specific indirect emissions and products are exempt to avoid issues such as ‘double protection’. However, most of these exemptions are marked to be phased out.
- Operational and Technical Exclusions: The methodology for calculation embedded emissions excludes certain activities from the system boundary. This includes the purchase and maintenance of production equipment and buildings, emissions from mobile machinery, and some fuels for internal plant use (strictly limited).
Are there similar or aligned regulations in other parts of the world?
It is expected that other jurisdictions will follow the EU’s example on carbon border taxation.
The UK has announced it will introduce its own UK CBAM on the 1st January 2027, with no transitional period. Whilst it contains several key design differences compared to the EU mechanism, it will result in no CBAM payments for exports to the EU (based on EU modelling assumptions).
The US is developing a Border Carbon Adjustment Proposal, including the Clean Competition Act (CCA) and the Foreign Pollution Fee Act (FPFA). These acts includes 25 sectors, so a wider scope than the CBAM. Tariffs would be payable on the difference between the actual emissions and US baseline emissions.
What’s likely to happen next with CBAM?
Over time, CBAM will expand to cover more goods and more complex products. As other jurisdictions adopt similar schemes there will be adjustments to accommodate carbon prices that have already been paid in the country of production.
What opportunities can CBAM bring to my organisation?
For operators, having efficient CBAM monitoring and reporting capabilities can be a competitive advantage, setting your organisation apart from competitors that don’t offer similar capabilities, or do so at a higher cost. Installation operators also have the potential to increase the competitiveness of their goods by demonstrating lower emissions than their competitors through methods such as life cycle assessment. Forward-looking organisations are already taking action in order to reap the benefits sooner.
For importers, CBAM offers the opportunity to reconsider their supplier relationships and reconfigure their supply chains to minimise carbon emissions and, therefore, costs. The financial pressure CBAM puts on organisations importing carbon-intensive goods into the EU can be used as an incentive to address your wider sustainability credentials and increase business and supply chain resilience. With investors and consumers growing more eco-conscious as well as ever-increasing regulatory pressure, organisations must take action to remain competitive, attract investment and stay compliant.
What is the best approach to mitigate the impacts of CBAM?
The impacts and practicalities of CBAM are complex. As such, it is critical to seek expert advice to fully understand what is in scope for you, how to comply and the ongoing impact on your organisation. To reduce the ongoing impacts, you will need a robust strategy, informed by a supply chain risk mapping, cost-benefit analysis, scenario modelling and enhanced sustainable procurement practices, implemented through optimising your supply chain and enhancing your production processes.
Further support and information
Find out how Ricardo’s experts can support you with a CBAM impact assessment and strategy
Get in touch with any other questions or to start a conversation about support with CBAM
News: Ricardo supports the European Commission with Carbon Border Adjustment Mechanism (CBAM)
