CBAM: What It Is & How It Affects Your Industry

The Carbon Border Adjustment Mechanism (CBAM) is a tariff implemented by the European Union (EU) to address climate change. In simple terms, it's a carbon border tax. Its primary goal is to prevent "carbon leakage," which occurs when companies based in Europe move carbon-intensive production to countries with weaker environmental regulations to cut costs.

By requiring importers to pay for the carbon emissions associated with certain goods, the CBAM ensures that products made outside the EU face the same carbon price as those produced domestically under the EU's Emissions Trading System (ETS). This encourages non-EU producers to adopt greener manufacturing processes.

The Carbon Border Tax requires EU importers to purchase special certificates to cover the carbon footprint of the goods they bring into the union. The process is designed to mirror the costs faced by local producers.

Here is a step-by-step breakdown of the CBAM process:

Step 1: Purchase CBAM Certificates

Importers must buy CBAM certificates corresponding to the carbon price that would have been paid if the goods were produced under the EU's carbon pricing rules.

Step 2: Declare Annual Emissions

Each year, importers must declare the total volume of goods imported and their embedded greenhouse gas emissions for the preceding year.

Step 3: Surrender Certificates 

Importers will surrender the corresponding number of CBAM certificates to cover the declared emissions.

Step 4: Deduct Foreign Carbon Prices

If a carbon price has already been paid in the producer's home country, that amount can be deducted from the final CBAM cost. If emission data is unavailable, default values will be applied.

To unlock the secrets to resilient supply chains in the carbon tax era, join Carbmee's exclusive webinar. 

The CBAM regulation is being implemented gradually, initially targeting sectors with a high risk of carbon leakage. Companies that source materials from non-EU suppliers without a comparable carbon price will be most affected.

Initially Impacted Goods

The first phase of the CBAM applies to the import of specific goods, including:

• Iron and Steel
• Aluminium
• Cement
• Electricity
• Fertilizers

Key Industries Facing High Costs

Based on the initial list of goods, industries that rely heavily on these materials will face the most significant impact. These include:

• Automotive
• Construction
• Packaging

For example, analyses suggest that without changes, steel imports from some countries could see costs rise by over 30%. Businesses importing key components from regions without carbon pricing mechanisms in place, will need to reassess their sourcing strategies to avoid high costs.

The CBAM is currently in its transitional phase, running through the end of 2025. During this period, importers must report the embedded emissions of covered goods, but no financial payments or penalties are required yet. 

From 2026 onward, the CBAM mechanism enters full enforcement. Then, importers must annually declare the emissions embedded in their imported goods and surrender the corresponding number of CBAM certificates, effectively aligning foreign goods with the EU’s carbon pricing system. The scope may also expand to include more products and indirect emissions.

The CBAM is set to create significant shifts in global trade dynamics. It incentivizes the renegotiation of trade agreements to align carbon pricing with EU standards, potentially reducing the tax burden and giving new meaning to climate-aligned trade policies.

For EU-based manufacturers in carbon-intensive sectors, the CBAM helps level the competitive landscape. These companies, already subject to the EU ETS, often compete with importers from regions without such costs. By applying a carbon price at the border, the CBAM ensures fairer competition and encourages a global rise in environmental standards.

The most crucial step for any affected business is to identify and quantify emissions across the supply chain. With the majority of emissions hidden in Scope 3, gaining transparency is essential—not only for meeting CBAM reporting requirements but also for avoiding unexpected financial risks.

With Carbmee’s Environmental Intelligence System (EIS™) you can streamline data collection, gain full visibility into emissions hotspots, and ensure your organization is CBAM-ready.

Here’s how you benefit from carbmee EIS™:

Automate Carbon Accounting: Gain a comprehensive view of your entire carbon footprint, including complex Scope 3 emissions hidden in your supply chain.

Generate Audit-Ready Reports: Simplify CBAM compliance with automated, reliable reports that are ready for verification, ensuring you can confidently meet regulatory deadlines and avoid penalties.

Identify Decarbonization Opportunities: Use granular data to pinpoint emission hotspots in your supply chain and make informed sourcing decisions that reduce both your environmental impact and future carbon tax liabilities.

Take the first step towards CBAM compliance and carbon reduction. Talk to one of our industry experts today!

Why Was CBAM Introduced?

CBAM was introduced primarily to prevent "carbon leakage." This is the risk that companies might move their carbon-intensive production from the EU to countries with less ambitious climate policies, or that EU products are replaced by more carbon-intensive imports. The CBAM aims to ensure the effectiveness of the EU's climate policies.

When Does the CBAM Transitional Period End?

The CBAM transitional period, which focuses solely on reporting obligations without financial charges, is set to end on December 31, 2025. The definitive system, requiring the purchase of CBAM certificates, will begin on January 1, 2026.

Does CBAM Apply to the UK?

Yes, goods imported from the United Kingdom into the EU are subject to the CBAM regulation, as the UK is a non-EU country. However, the UK is also planning to implement its own Carbon Border Adjustment Mechanism by 2027, which may affect future trade dynamics.

How Are CBAM Certificates Priced?

The price of CBAM certificates will be directly linked to the weekly average auction price of EU ETS allowances, which are traded in euros per tonne of CO2 emitted. This ensures that the carbon price paid by importers mirrors the price paid by EU domestic producers.