Carbon border adjustment mechanism

What it means

CBAM is a carbon adjustment at the border of the Union: the importer reports the emissions embedded in the imported goods and, in the full regime, pays for them much as an EU producer pays inside the emissions trading system.

It does not cover every import. The mechanism applies to defined groups of goods, namely cement, iron and steel, aluminium, fertilisers, electricity and hydrogen, and the scope follows combined nomenclature codes rather than product names.

CBAM is not a customs duty, even though it applies on import and relies on customs data. Duty is paid to customs when the goods are released, whereas CBAM certificates are bought and surrendered in a separate system for the whole year, at a price that tracks EU emission allowances. A zero duty rate under a free trade agreement therefore has no effect on the CBAM obligation.

How it works in practice

The transitional phase, from October 2023 to the end of 2025, meant reporting only: a quarterly statement of the carbon footprint of the imported goods into a register run by the European Commission, with nothing to pay. From 2026 the definitive regime takes over: only an authorised declarant may import the covered goods, and the emissions are covered by certificates. Thresholds and the date of the first surrender have moved with later amendments, so they are checked against the current text.

The report comes from the importer or from an indirect customs representative, always under an EORI number. Emission data has to come from the producer outside the Union, so it is agreed in the order before the goods ever leave.

A company that imports steel or aluminium components only occasionally should first check whether its annual quantity exceeds the threshold below which the obligations do not apply. We can build an overview of imports with codes and weights from the customs clearance decisions in the books, so the decision rests on figures rather than a guess.

What to watch out for

Nobody asked about emission data at order time, the supplier does not have it, and the importer falls back on default values. Those run higher than the real figures, so once payments start they turn into needless certificate cost, with a penalty for an incomplete report on top.

Certificate cost is easy to miss when setting prices, because it arrives neither with the supplier invoice nor with the customs decision but later, for the whole year at once. A company that leaves it out of the costing of products made from imported material sells at a thinner margin than it believes.