CBAM is the EU's carbon border tax. It requires importers of certain goods into the EU to purchase CBAM certificates reflecting the embedded carbon in their imports, equivalent to the carbon price EU producers pay under the ETS. This prevents 'carbon leakage' — companies moving production to countries without carbon pricing.

Which products are covered?

CBAM currently covers: iron and steel, aluminum, cement, fertilizers, electricity, and hydrogen. The EU plans to expand coverage to additional sectors as the mechanism matures, potentially including organic chemicals, polymers, and other carbon-intensive products.

How does CBAM affect non-EU manufacturers?

Non-EU manufacturers exporting to the EU will need to provide emissions data to their EU importers. If they can demonstrate that a carbon price has already been paid in their home country, this is deducted from the CBAM liability. Companies in countries without carbon pricing face the full CBAM cost — creating a competitive incentive to decarbonize.

CBAM: Carbon Border Adjustment Mechanism

What Is CBAM?

The Carbon Border Adjustment Mechanism (CBAM) is the EU's policy to prevent carbon leakage by placing a carbon price on imports of certain carbon-intensive goods. It ensures that imported products face the same carbon costs as products manufactured within the EU under the Emissions Trading System (ETS).

CBAM is designed to maintain the competitiveness of EU industry as carbon prices rise under the ETS, while encouraging trading partners to adopt their own climate policies.

Who It Applies To

EU importers of CBAM-covered goods: Must report embedded emissions and purchase CBAM certificates
Non-EU manufacturers: Must provide emissions data to EU importers
Covered sectors: Iron and steel, aluminum, cement, fertilizers, electricity, hydrogen

Key Requirements

Transitional period (October 2023 - December 2025):

EU importers must submit quarterly CBAM reports detailing embedded emissions in imported goods
No financial obligation during this period — reporting only
Default values available where actual data is unavailable

Definitive regime (January 2026 onwards):

EU importers must purchase CBAM certificates from their national authority
Certificate price linked to the weekly average EU ETS auction price
Number of certificates = embedded emissions in imported goods
Deductions available for: carbon prices already paid in the country of origin, free ETS allowances (phased out by 2034)

Emissions calculation:

Direct emissions from the production process
Indirect emissions from electricity used in production (for certain products)
Specific calculation methodologies per product category

Timeline

October 2023: Transitional period began (quarterly reporting)
January 2025: Reporting using actual emissions data required (default values restricted)
January 2026: Definitive CBAM enters force — financial obligations begin
2026-2034: CBAM certificates phased in as free ETS allowances are phased out

Compliance Steps

Identify affected imports: Review your supply chain for CBAM-covered products imported into the EU
Engage non-EU suppliers: Request actual emissions data for covered products
Register as authorized declarant: EU importers must register with their national CBAM authority
Submit quarterly reports: During transitional period, report embedded emissions
Calculate embedded emissions: Use actual data from producers or authorized default values
Purchase CBAM certificates: From 2026, purchase certificates to cover embedded emissions
Track carbon prices paid abroad: Document any carbon prices paid in the country of origin for deductions

Penalties

Transitional period: Penalties for late or incomplete reporting (€10-50 per tonne of unreported emissions)
Definitive regime: Penalties equivalent to ETS penalties for unreported emissions (€100 per tonne, adjusted for inflation, plus the obligation to purchase missing certificates)

How Council Fire Can Help

Council Fire helps EU importers and non-EU exporters navigate CBAM compliance — from supply chain mapping and emissions calculation through reporting systems and certificate management. Contact us for CBAM support.