Understanding CBAM

What is CBAM?

The CBAM (Carbon Border Adjustment Mechanism) is a climate policy instrument of the European Union established by Regulation (EU) 2023/956 of 10 May 2023 (OJEU L 130, 16.5.2023).

Its core objective: prevent carbon leakage. Without CBAM, European producers subject to the EU Emissions Trading System (EU-ETS) face a competitive disadvantage compared to importers from third countries where carbon is not priced. CBAM restores the level playing field by imposing on importers a carbon cost equivalent to the one borne by European producers.

Why CBAM exists

CBAM is part of the European Commission's "Fit for 55" package, which aims to cut greenhouse gas emissions by 55% by 2030 compared to 1990 levels. It addresses a dual challenge:

1. The risk of carbon leakage: without a corrective mechanism, European companies are incentivised to relocate production to less stringent jurisdictions, which cancels the climate benefits of the EU-ETS.
2. The phase-out of free allowances: free EU-ETS allowances allocated to exposed sectors are being progressively phased out between 2026 and 2034. CBAM is their replacement.

Legal basis

CBAM is based on Article 192(1) TFEU (environmental policy). It is neither a customs duty nor a tax in the fiscal sense, but an autonomous environmental mechanism articulated with the EU-ETS system.

Scope and ambition

The mechanism covers six carbon-intensive industrial sectors -- cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen -- that together represent approximately 50% of EU industrial emissions. The sectors were selected based on their carbon intensity, exposure to carbon leakage risk, and feasibility of emissions monitoring.

CBAM is designed to scale: Article 30 mandates a review before 1 January 2028, which will assess whether to extend coverage to additional sectors (organic chemicals, polymers, refined petroleum products) and downstream products.

Timeline and phases

Transitional phase (1 October 2023 -- 31 December 2025)

During this period, importers had reporting obligations only:

• Quarterly reports on the embedded emissions of imported goods (Art. 35, implemented by Implementing Regulation 2023/1773)
• No financial obligation (no certificate purchases)
• Use of the Commission's transitional CBAM registry
• Simplified reporting methods were permitted, including the use of default values and third-country monitoring methods

The transitional phase served as a learning period for operators and authorities alike. The Commission published guidance documents and hosted training sessions to prepare the profession for the definitive phase.

Definitive phase (since 1 January 2026)

Since 1 January 2026, CBAM is fully operational:

• Obligation to be registered as an authorised CBAM declarant before any import (Art. 4-5)
• Annual declaration by 31 May of each year (Art. 6)
• Purchase and surrender of CBAM certificates corresponding to embedded emissions (Art. 20-22)
• Verification of emissions by accredited verifiers (Art. 8)
• De minimis threshold: exemption for shipments below 50 tonnes per consignor (Art. 2a, amended by Regulation 2025/2083)

Phase-out of free EU-ETS allowances

CBAM ramps up as free allowances decline:

In 2026, the financial impact is therefore limited (2.5% factor), but it will grow each year to reach 100% in 2034. This graduated approach gives importers time to adapt their supply chains and negotiate emissions data from suppliers.

Illustration of the cost trajectory: for a typical steel import (2.1 tCO2/t embedded emissions, EUR 70/tCO2 certificate price), the CBAM surcharge per tonne evolves from EUR 3.68 in 2026 to EUR 147 in 2034 -- a 40-fold increase.

Institutional architecture

The actors

• European Commission: manages the CBAM registry, sets certificate prices, publishes default emissions values, oversees the system, and coordinates with national authorities
• National competent authorities: issue authorised CBAM declarant status, review annual declarations, enforce penalties. Each EU Member State designates at least one competent authority (e.g. DGDDI in France, DEHSt in Germany, AEAT in Spain, HMRC cooperating for UK trade)
• Accredited verifiers: verify the emissions declared by operators (accredited under Regulation 2025/2551, based on ISO 14065)
• Third-country installation operators: provide actual emissions data (Art. 10, registry under Regulation 2024/3210). Registration is voluntary but strongly incentivised -- installations that register can communicate emissions data directly to the registry

The CBAM registry

The CBAM registry (Art. 14) is a centralised electronic system that:

• Registers authorised CBAM declarants and manages their accounts
• Manages certificate accounts (purchase, holding, surrender, buyback)
• Registers third-country installations and their emissions data
• Stores annual declarations and verification reports
• Interfaces with national customs systems for real-time verification of declarant status during customs clearance
• Provides transparency reports and aggregate statistics

The registry is accessible via the European Commission portal. Its technical specifications are defined in Implementing Regulation 2024/3210.

Interaction with other mechanisms

CBAM and the EU-ETS

CBAM is the "mirror" of the EU-ETS for imports. The CBAM certificate price is calculated on the basis of the weekly average EU-ETS auction price. The two systems are complementary: the EU-ETS covers domestic production, CBAM covers imports of the same goods.

The phased approach ensures that there is no double protection: as free EU-ETS allowances decline, the CBAM factor increases proportionally. At full implementation in 2034, both EU producers and importers will face the full carbon price with no free allocation.

CBAM and trade agreements

CBAM is designed to be compatible with WTO rules insofar as it applies in a non-discriminatory manner and allows deductions for carbon prices paid in third countries (Art. 9). The Commission has engaged in consultations with major trading partners.

Key developments in trade partner responses:

• United Kingdom: developing its own UK CBAM (planned from 2027), with ongoing mutual recognition negotiations
• United States: no federal carbon pricing, but California cap-and-trade may qualify for partial deductions
• Canada: federal carbon tax qualifies for deductions
• China: national ETS qualifies, but prices remain significantly lower than EU-ETS

CBAM and the Union Customs Code

CBAM is not a customs duty and does not fall under the UCC. However, customs declarations transmit the data necessary for CBAM (Art. 33, implemented by Regulation 2025/2619). Tariff classification (CN codes from Annex I) and the origin of goods are essential elements for determining CBAM liability.

The TARIC nomenclature and our automated classification tool can help you identify whether your goods fall within the scope of CBAM Annex I.