What Is CBAM? The EU Carbon Border Adjustment Mechanism Explained for 2026

The EU Carbon Border Adjustment Mechanism (CBAM) is a regulation that puts a carbon price on imports of carbon-intensive goods entering the European Union. Active from 1 January 2026, it requires EU importers of steel, cement, aluminium, fertilisers, hydrogen, and electricity to purchase CBAM certificates matching the carbon cost EU producers pay under the EU Emissions Trading System (ETS). If you export to the EU or source from suppliers who do, CBAM is now a financial obligation not a future consideration.

What Is CBAM and Why Did the EU Introduce It?

The Carbon Border Adjustment Mechanism (CBAM) is the EU’s answer to a problem that has undermined its emissions trading system for years: Carbon leakage.

Carbon leakage happens when EU manufacturers face a carbon price on their production but their foreign competitors do not. The result is predictable — production shifts to countries with weaker climate policies, emissions continue elsewhere, and the EU’s domestic industry loses ground on price. The EU ETS, which has been running since 2005, partially addressed this by handing out free allowances to industries most at risk. But free allowances blunt the very incentive the ETS is designed to create. Companies receiving them have little financial reason to decarbonise.

CBAM resolves this by extending the carbon price to the border. Imported goods now face the same carbon cost as goods produced inside the EU. The free allowance system is being phased out in parallel, creating a direct and escalating financial incentive for both EU importers and their foreign suppliers to reduce embedded carbon emissions.

The mechanism is part of the EU’s Fit for 55 package — the legislative programme designed to cut greenhouse gas emissions by at least 55% against 1990 levels by 2030. CBAM is not a standalone policy. It is structurally linked to the EU ETS, and its cost to importers rises every year as ETS free allowances fall.

The CBAM Timeline

What Are CBAM Covered Goods?

CBAM currently applies to six sectors, selected for their high emissions intensity and their historical vulnerability to carbon leakage:

Iron and steel: One of the most carbon-intensive industrial sectors globally, and a significant import category for the EU from countries including India, Turkey, Ukraine, and China.

Cement: Cement production accounts for approximately 8% of global CO2 emissions. The EU is a net importer of cement clinker from countries with no equivalent carbon price.

Aluminium: Energy-intensive to produce, with emissions profiles that vary significantly depending on the electricity source used in smelting.

Fertilisers: Nitrogen-based fertilisers require large volumes of natural gas in production, making them among the highest-emission goods in agricultural supply chains.

Hydrogen: Included to prevent the EU’s emerging clean hydrogen economy from being undercut by cheaper, carbon-intensive hydrogen imports.

Electricity: Addresses the carbon content of power imported across EU borders, primarily from neighbouring non-EU countries.

These six categories are defined at the CN code level in Annex I of Regulation (EU) 2023/956. When fully phased in, CBAM will capture more than 50% of the emissions in sectors covered by the EU ETS, according to the European Commission.

How the CBAM Timeline Works: From Reporting to Real Costs

CBAM has moved through two distinct phases. Understanding where it sits now — and where costs are heading — is the foundation of any compliance strategy.

The transitional period established the reporting obligations and system boundaries that now govern how EU businesses calculate embedded emissions under the definitive phase.

Transitional phase: October 2023 to December 2025

During this period, EU importers were required to submit quarterly reports detailing the embedded carbon emissions in their CBAM goods. No certificates were required and no financial obligations applied. The purpose was data collection and system preparation. Penalties of up to €50 per tonne of CO2 applied for non-compliance with reporting requirements during this phase.

Definitive phase: From 1 January 2026

This is where CBAM stands today. As of 1 January 2026, financial obligations are live. Only authorised CBAM declarants may import CBAM-covered goods into the EU. Importers must now submit verified emissions data — confirmed by an accredited third-party verifier — rather than self-reported estimates.

The first annual CBAM declaration covers imports made during 2026 and must be submitted by 30 September 2027. CBAM certificate sales open on 1 February 2027 via the central CBAM registry. The first surrender of certificates takes place alongside that declaration.

The phase-in factor: how costs escalate to 2034

CBAM obligations do not apply to 100% of embedded emissions immediately. They phase in as EU ETS free allowances are simultaneously phased out:

By 2034, importers pay for the full carbon cost of every tonne of embedded emissions. This is a fixed, published schedule — any finance team can model their exposure against it today.

What CBAM Actually Costs: Certificates, the ETS Price, and the Default Value Trap

This is the section most CBAM guides skip. Understanding the mechanism is one thing. Understanding what it will cost your business is another.

How CBAM certificate prices are set

CBAM certificates are priced at the weekly average auction price of EU ETS allowances, expressed in euros per tonne of CO2. The EU ETS price has traded broadly in the €50–€80 per tonne range in recent years, with significant volatility driven by energy market conditions and broader economic factors. Importers cannot lock in a price — they buy certificates at whatever the ETS price is at the time of purchase.

The cost formula

The certificate cost for a given import is calculated as:

Embedded emissions (tCO2e) × Phase-in factor × ETS price (€/tCO2e) = CBAM certificate cost

At a 2.5% phase-in factor in 2026 and an ETS price of €65/tonne, the immediate cost is modest. But at 100% in 2034 and an ETS price that could sit significantly higher, the numbers become material for any business importing significant volumes of steel, aluminium, or cement.

The default value trap

Here is what most CBAM guides either miss or bury. Default values are not a neutral fallback. They are set deliberately above the average actual emissions intensity for each product category, specifically to penalise importers who cannot provide verified supplier data. Using defaults costs more than using actual emissions data — and that gap widens every year as the phase-in factor rises.

If your EU customer cannot get primary emissions data from you as a non-EU supplier, they will use defaults. Those defaults will be charged back into the cost of your goods, making them less competitive against suppliers who can provide verified actual data. The financial case for getting your emissions data in order is not about compliance — it is about not being priced out of the EU market by your own data gaps.

The businesses most exposed to CBAM cost inflation are not necessarily the highest emitters. They are the ones without clean supplier data.

If your products move into the EU market, your CBAM obligations start before the goods cross the border.

Download the CBAM Supplier Data Checklist to see where your gaps are

Which Countries and Importers Are Exempt from CBAM?

Country exemptions

Imports from countries within the EU ETS or with a linked carbon pricing system are exempt from CBAM. This currently covers:

• All EU member states (internal trade is not subject to CBAM)
• EEA countries: Iceland, Liechtenstein, and Norway
• Switzerland, whose ETS is linked to the EU ETS

Imports from all other third countries — including Australia, India, the United States, China, Turkey, and the United Kingdom — are subject to CBAM obligations.

The 50-tonne de minimis threshold

Under Regulation (EU) 2025/2083, introduced as part of the EU Omnibus simplification package, EU importers bringing in less than 50 tonnes of CBAM goods per calendar year are exempt from CBAM obligations for that year. This threshold is estimated to remove approximately 90% of EU importers — mostly SMEs — from scope, while retaining more than 99% of in-scope emissions within the mechanism.

Important: once an importer exceeds the 50-tonne threshold in a given year, all imports for that year fall under full CBAM obligations — not just the volume above the threshold.

Authorised CBAM declarant status

From 1 January 2026, only authorised CBAM declarants may import CBAM goods into the EU. Importers were required to submit applications via the CBAM Authorisation Management Module before the definitive phase began on 1 January 2026. Any EU importer that has not obtained this status cannot legally import CBAM-covered goods.

What CBAM Means If You Export to the EU: Australia, India, and the US

For companies based outside the EU — whether in Australia, India, the United States, or elsewhere — CBAM does not create a direct legal obligation. The obligation sits with the EU importer. But the commercial reality is more complex than that.

Your EU customer is now legally required to report verified emissions data on the goods they import from you. If you cannot provide that data, one of two things happens: they use default values, which cost more and erode your price competitiveness, or they find a supplier who can provide the data.

What your EU customer needs from you:

• Product-specific embedded emissions data, calculated using the EU CBAM methodology
• Confirmation of any carbon price already paid in your country of origin, which can be offset against the CBAM cost
• Documentation sufficient for third-party verification by an EU-accredited verifier

For Australian exporters: Australia has no national carbon price mechanism equivalent to the EU ETS. There is no offset to claim against CBAM costs. Australian manufacturers exporting steel, aluminium, or other CBAM-covered goods to the EU face the full certificate cost with no deduction. The competitive pressure is immediate.

For Indian exporters: India is one of the largest exporters of iron and steel into the EU. Indian manufacturers without product-level emissions data will find themselves competing against suppliers who can demonstrate lower embedded carbon emissions — and attract lower CBAM costs for their EU customers.

One leading Indian steel manufacturer we work with, exports approximately 50% of its total production to the EU.

When CBAM obligations came into force, they had no internal process for calculating or evidencing embedded emissions — fuel and energy data was fragmented across facilities, supplier-specific emission factors were largely unavailable, and there was no reporting workflow in place.

Working with CrediblESG, they mapped their manufacturing process end to end, calculated direct and indirect emissions in line with EU CBAM methodology, and submitted their CBAM communication templates directly into the EU registry — reporting actual point-to-point emissions data where most filers fall back on default values.

Read the entire case study here.

For US exporters: The US has no federal carbon price, meaning the carbon price paid in the country of origin cannot be deducted against certificate obligations. Carbon intensive goods imported from the US attract the full CBAM cost with no offset.

The transatlantic trade relationship — worth over €1.6 trillion in goods and services in 2023 — means even a relatively small share of US exports touching CBAM sectors represents significant financial exposure.

EU customers will expect US suppliers to provide emissions data covering direct emissions and process emissions from their production processes, calculated in line with EU Commission guidance and the relevant implementing regulation.

The practical starting point for any non-EU exporter is the same: Identify which of your products are CBAM covered goods, calculate their embedded emissions using the EU methodology, and get that data to your EU customers before they resort to defaults.

CBAM Is Expanding: The 2028 Downstream Proposal

The current six-sector scope of CBAM is not the endpoint. In December 2025, the European Commission proposed extending CBAM to approximately 180 downstream product categories — manufactured goods that incorporate materials already covered by CBAM.

The proposal targets products such as fabricated metal goods, certain machinery, and steel and aluminium-intensive components. The intent is to close a gap in the current mechanism: a company can currently avoid CBAM by importing finished goods that contain CBAM-covered materials rather than importing those materials directly. The downstream expansion removes that route.

The proposal is subject to the EU’s trilogue legislative process and is expected to take effect from 2028 if adopted on schedule. For manufacturers and procurement teams, 2028 is not far away. Companies that source steel-intensive components, aluminium assemblies, or fertiliser-dependent agricultural inputs from outside the EU should be assessing their exposure now — not when the regulation is finalised.

The 2028 expansion also changes the risk calculus for companies currently outside CBAM scope. If your product category is not in the current six sectors but sits downstream of them, the assumption that CBAM does not affect you may not hold for much longer.

UK CBAM: The Next Deadline to Know

The United Kingdom’s Carbon Border Adjustment Mechanism launches on 1 January 2027 — one year after the EU definitive phase began.

UK CBAM covers broadly the same sectors as its EU counterpart: aluminium, cement, fertilisers, hydrogen, iron and steel, and electricity. It adds two categories not in the current EU scope: Ceramics and Glass. The mechanism is linked to the UK Emissions Trading Scheme rather than the EU ETS, meaning certificate prices will track the UK carbon price rather than the EU one.

For companies exporting into both the EU and the UK, this creates a dual compliance requirement with separate methodologies, separate registries, and separate certificate systems. The embedded emissions calculation rules are similar but not identical — particularly in the treatment of indirect emissions.

Any non-EU manufacturer currently preparing for EU CBAM compliance should be mapping their UK exposure at the same time. The data collection infrastructure required for EU CBAM is largely transferable to UK CBAM, making parallel preparation the most efficient approach.

How Credibl Helps You Map Your CBAM Exposure

CBAM compliance starts with one thing: Accurate, verified emissions data at the product level. Without it, your EU customers pay default penalty rates, your goods become less competitive, and your exposure grows every year as the phase-in factor rises toward 100% in 2034.

Credibl helps manufacturers and exporters in Australia, India, the US, and across Asia-Pacific map their embedded emissions against CBAM requirements, structure supplier data collection, and produce the verified output EU customers and their accredited verifiers need.

The 2028 downstream expansion means the window for orderly preparation is shorter than it looks.

See where your CBAM exposure sits.

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Frequently Asked Questions About CBAM

What is CBAM and when did it start?

CBAM — the Carbon Border Adjustment Mechanism — is an EU regulation that puts a carbon price on imports of carbon-intensive goods into the European Union. It entered its transitional phase on 1 October 2023, requiring quarterly emissions reporting with no financial obligations. The definitive phase, with full financial obligations, began on 1 January 2026.

Who needs to buy CBAM certificates?

Only authorised CBAM declarants — EU-based importers of CBAM-covered goods — are required to purchase and surrender CBAM certificates. Non-EU exporters do not buy certificates directly, but their ability to provide verified emissions data directly affects the cost their EU customers incur.

How is the CBAM certificate price calculated?

CBAM certificates are priced at the weekly average auction price of EU ETS allowances. Importers cannot hedge or lock in a price in advance. The number of certificates required is calculated by multiplying the verified embedded emissions of the imported goods by the applicable phase-in factor for that year.

Which countries are exempt from CBAM?

Countries within the EU ETS or with a carbon pricing system linked to it are exempt. This currently covers EEA countries and Switzerland. All other third countries — including Australia, India, the US, China, Turkey, and the UK — are subject to CBAM.

Will CBAM expand to new sectors?

Yes. The European Commission proposed in December 2025 to extend CBAM to approximately 180 downstream product categories from 2028. A broader review is also underway to assess extension to all sectors covered by the EU ETS — potentially including chemicals, polymers, and non-ferrous metals — by 2030.