CBAM: A guide to Carbon Border Adjustment Mechanism

What is CBAM?

The European Union's Carbon Border Adjustment Mechanism (CBAM) is a regulatory tool designed to ensure that carbon-intensive imported goods are subject to the same carbon costs as products manufactured within the EU. Its main goal is to prevent carbon leakage by applying a carbon price to imports of carbon-intensive goods from regions with less strict climate policies.

CBAM entered its definitive phase on January 1, 2026. From this moment, compliance began for importers and certificate obligations apply.

Who does CBAM affect? 

CBAM applies to EU importers, but it directly impacts non-EU manufacturers, since they need to supply product-specific carbon data to support compliance.

CBAM currently applies to goods in six sectors: cement, iron and steel, aluminium, fertilizers, electricity, and hydrogen. These sectors were selected due to their high greenhouse gas emissions and risk of carbon leakage. The EU has proposed to expand the scope to include additional product categories and steel and aluminium-intensive downstream goods from 2028.

Although the regulation targets goods at the customs code level, it may affect broader industries such as construction, manufacturing, energy, and automotive through embedded carbon in supply chains. 

How does CBAM work?

CBAM requires EU importers of covered goods to report embedded carbon emissions and, from 2026 onward, purchase and surrender CBAM certificates. These certificates reflect the embedded greenhouse gas emissions in imported products. Their prices are set according to an EU Emissions Trading System (ETS) auction price average calculated by the Commission.

Emissions reporting for certificates considers factors like energy use, carbon intensity, and raw materials. If a verified carbon price has already been paid in the country of origin, the equivalent value can be deducted from the importer’s certificate surrender obligation.

CBAM certificates price-setting

• For imports in 2026, the Commission applies a quarterly CBAM certificate price (volume-weighted EU ETS auction clearing prices).

• From January 1, 2027, the Commission will calculate a weekly CBAM certificate price.

Why should manufacturers and importers get ready for CBAM?

Importers need to become CBAM authorized declarants to ensure market access and avoid penalties.

Manufacturers who prepare early can differentiate their products by demonstrating lower verified emissions, reducing the risk of higher CBAM costs. This clear data disclosure and positioning towards EU buyers can strengthen their market position.

Environmental product declarations (EPDs) and life cycle assessments (LCAs) provide manufacturers with high-quality primary data collection, documentation, and governance processes helpful to meet CBAM requirements. Leveraging this existing data foundation, manufacturers can adapt to CBAM’s own calculation, boundary, and verification rules. 

CBAM timeline & phases

CBAM rolls out in two phases:

1. Transitional phase: October 2023 to December 2025. Importers must report embedded emissions of covered goods, but no certificates are required. 

    

2. Definitive phase: Began on January 1, 2026. From this point, importers entered the compliance phase where certificate obligations will apply:

CBAM certificate sales start on February 1, 2027, via the common central platform.

• The first surrender of CBAM certificates will take place in 2027, covering emissions from goods imported in 2026. It must be completed by September 30, 2027.

• From 2027 onward, authorized CBAM declarants must ensure that by the end of each quarter, they hold CBAM certificates covering at least 50% of embedded emissions to date (reduced from the previous planned 80% threshold).

Where and how do importers apply for CBAM authorization?

Importers must register in the CBAM Registry and apply to become authorized CBAM declarants. Authorization is required before importing CBAM-covered goods if the importer expects to exceed the 50-tonne annual exemption threshold. Indirect customs representatives must also be authorised if they act on behalf of the importer.

If an application is registered in the CBAM Registry by March 31, 2026, the applicant may provisionally continue importing until the decision takes effect.

From the definitive phase, manufacturers in third countries may register their production sites in the Registry to securely share verified emissions data with importers. Accredited verifiers will also be listed in the system.

The CBAM Registry is organized in two dedicated portals:

• The CBAM Declarants Portal is the single entry point for authorized CBAM declarants/applicants (and delegated persons acting on their behalf)

• The CBAM Operators Portal is the entry point for operators, verifiers and independent persons. The CBAM Registry will serve as the main platform for data exchange, declaration submission, and certificate surrender.

Authorities will monitor imports approaching the exemption threshold, and non-compliance may result in penalties.

What legislation defines CBAM mechanisms and requirements?

CBAM is set out in Regulation (EU) 2023/956 and amended by later legislation, including Regulation (EU) 2025/2083 (“CBAM simplification”). On December 22, 2025, the European Commission published a package of CBAM implementing and delegated acts that established the binding rules for the definitive phase of CBAM. These acts specify embedded emissions calculation rules, verification requirements, reporting templates, and registry operations.

CBAM is a core element of the EU’s Fit for 55 legislative package and is closely aligned with other major regulatory frameworks that support the EU’s climate objectives. It complements the EU Emissions Trading System (ETS) by extending carbon pricing to imports, particularly as free allowances under the ETS are gradually phased out.

In the same carbon transparency spirit, the recently revised Construction Products Regulation (CPR) mandates environmental disclosures such as embodied carbon data. In parallel, the Ecodesign for Sustainable Products Regulation (ESPR) introduces requirements for product-level sustainability and digital product passports, which may include carbon intensity information. Together, all these regulations form a coherent EU policy landscape driving transparency, accountability, and decarbonization across supply chains both within and outside the EU.

Key CBAM requirements for manufacturers — detailed guide

CBAM places new obligations on non-EU manufacturers whose goods are imported into the EU. To support EU importers and remain competitive, manufacturers should focus on three key areas:

1. Prepare product-specific and quality data

Use CBAM methodology to report emissions

CBAM distinguishes direct emissions (from production processes) and indirect emissions (from electricity consumed in production). 

Goods are classified into different Annexes. For goods listed in Annex II, only direct emissions are calculated and taken into account. Annex II includes aluminium, hydrogen, and most classifications of iron and steel. For other goods, embedded emissions include indirect emissions and are calculated under Annex IV — excluding imported electricity, which is treated separately. 

• Direct emissions: Always included. Manufacturers must report process emissions (e.g., calcination, smelting, combustion) and on-site fuel use. 
• Indirect emissions: Included except for goods listed in Annex II.
  
  Product examples:
  • Aluminium: Only direct emissions are included.
  • Cement: both direct and indirect emissions apply. 
  • Iron & steel: Only direct emissions are taken into account.

Functional units and product-based calculation

From 2026, the detailed methodology for calculations is set out in a Commission Implementing Regulation published on December 22, 2025. The methodology is product-based and, as a general rule, the functional unit is defined as a tonne of goods under the same Combined Nomenclature (CN) code.

There are some further specifications:

Where an installation uses multiple production routes for the same good, the methodology requires weighted-average calculations. 

For goods commercialized in different composition ranges, there are specific calculations for:

• Goods whose functional unit is tonnes of clinker content (for some cement products)

• Goods whose functional unit is kilograms of nitrogen content or a supplementary unit (certain fertilizers)

In these cases, the ranges of composition for clinker content and nitrogen content cannot exceed 10%. 

• For complex goods, embedded emissions incorporate relevant precursors per functional unit of the goods and per functional unit of the precursor.

CBAM reporting requirements for simple vs. complex goods 

CBAM reporting and data collection can be more challenging when embedded emissions apply through precursor supply chains.

Simple goods: For goods produced in processes with no precursors carrying embedded emissions (e.g. cement clinker, basic steel), importers must report actual embedded emissions.

While reporting began on October 1, 2023, the requirement to use actual data — rather than default values — became mandatory starting July 1, 2024. The calculation must follow the method in Annex IV of the CBAM Regulation, accounting for direct and, where relevant, indirect emissions.

Complex goods: For goods that involve multiple precursors with their own embedded emissions (e.g. complex steel products, alloys), the European Commission introduced an 80/20 rule starting July 1, 2024. This rule requires:

• At least 80% of the reported embedded emissions must be based on actual data from upstream producers.

• No more than 20% may rely on default values published by the Commission.

The 80/20 split is designed to encourage data collection throughout the supply chain while providing some flexibility during the transition.

CBAM reporting data requirements 

Importers must calculate emissions using CBAM’s prescribed methodology. While tools like Environmental Product Declarations (EPDs) or Product Carbon Footprints (PCFs) can support this process, they do not meet CBAM’s regulatory requirements by themselves.

Sharing third-party verified data with EU importers adjusts the final pricing to the actual products values. This way importers avoid the use of conservative default values, which may make products appear more carbon-intensive and less competitive. 

Actual data vs. default values

When actual emissions data cannot be obtained, default values can be used. However, this approach will apply the highest-intensity and most expensive default value, to prevent mis-use of “unknown origin”. 

The European Commission has set official default embedded-emissions values for CBAM-covered goods, defined by Combined Nomenclature (CN) code and country of origin, covering direct, indirect, and total emissions. The framework includes conservative mark-ups that increase over time, with step changes in 2026, 2027, and from 2028 onward.

These default values apply from January 1, 2026, and are intended only as a fallback where verified, product-specific emissions data is unavailable. Importers should switch to verified actual emissions data as soon as possible, as default values are deliberately conservative and become progressively more expensive.

2. Support EU importer's reporting

Supply data in the format required for quarterly and annual CBAM reporting.

Respond to importer requests promptly — especially during the transitional period (2023–2025) and early definitive phase, when they are gathering data to prepare for full compliance.

For complex goods, expect importers/operators to request precursor-level information like CN code, country of origin, whether default values were used, and verification details. These items are explicitly reflected in the verification documentation and report structure.

3. Prepare for digital compliance

• Familiarize your teams with the CBAM Registry and Authorisation Management Module (AMM), the official platforms for data exchange.
• Ensure your internal systems can provide emissions data consistently and in a way that can be uploaded or shared digitally.
• The CBAM Registry’s access model explicitly supports delegation, meaning authorized CBAM declarants/applicants can have persons delegated to act on behalf of and in the name of those users — useful if importers use consultants or shared service models.

Reporting & data verification for CBAM

Emissions data must follow CBAM approved calculation methods. Only verified emissions data can be used for CBAM compliance. Manufacturers should prepare to collect, document, and verify emissions from production processes to enable smooth reporting for importers.

The implementing acts from December 22, 2025, define key verification concepts (misstatement, material misstatement, materiality level, non-conformity) and set conditions for physical site visits. 

Physical visits and virtual visits

Verification follows a risk-based approach and includes site-visit requirements. In the first year subject to verification, the verifier must carry out a physical site visit in all cases. In a second consecutive year, the verifier may replace the physical visit with a virtual visit, or waive it only where criteria are met and a physical visit took place in the previous year. Physical site visits must occur at least every two years.

CBAM reporting data materiality limits and free allocation adjustment

From the definitive phase, verifiers work against a materiality threshold of 5% of total embedded emissions and 5% of total specific embedded free allocation, assessed per CN code. Defined rules apply for specific goods, including electricity and hydrogen.

From 2026, CBAM certificate surrender is reduced via a ‘free allocation adjustment’, linked to the ETS free allocation phase-down. If default values are used for embedded emissions in the CBAM declaration, the free allocation adjustment is calculated using default values.

Where complex goods use a precursor from multiple installations, the embedded free allocation is determined as a weighted average, unless there is evidence the process used a specific subset/single installation.

These rules will be revised in 2027.

CBAM simplification measures

In October 2025, the EU adopted a package of simplifications under Regulation (EU) 2025/2083 to streamline and reduce administrative burdens during the definitive phase of CBAM. These include:

1. De minimis exemption 

• A single 50-tonne annual mass-based exemption now applies to importers whose total yearly imports of cement, iron and steel, aluminium and fertilizers do not exceed 50 tonnes combined. Importers below this threshold are exempt from CBAM obligations for that year.
• This exemption does not apply to electricity or hydrogen.

2. Certificate purchase & surrender adjustments

• First certificate purchases will begin from February 1, 2027, covering emissions embedded in goods imported in 2026.
• Certificates must be surrendered by September 30 each year, starting in 2027 for the 2026 reporting year.
• For imports in 2026, the CBAM certificate price is set as quarterly, volume-weighted averages of EU ETS auction clearing prices. From 2027, the price is set weekly.
• The Commission publishes the applicable CBAM certificate price on its website. Prices will also be available to authorized CBAM declarants in the CBAM Registry.

3. Quarterly obligation reduced from 80% to 50%

• From 2027 onward, authorized CBAM declarants must maintain CBAM certificates equal to at least 50% (previously planned at 80%) of embedded emissions at the end of each quarter. 

4. Penalty relief for minor exceedances

• Penalties may be reduced where an importer slightly exceeds the 50-tonne threshold (up to 10%), or where incorrect data was provided due to verified third-party errors.

5. Clarified default carbon pricing (from 2027)

• The EU will set rules for deducting a carbon price effectively paid in third countries. Until those rules are adopted, deductions depend on verified evidence consistent with the CBAM Regulation’s requirements.

6. Alignment of system boundaries with EU ETS (for certain finishing processes)

• For some aluminium and steel goods primarily composed of high-emission precursors, low-emission finishing steps are now excluded from embedded emissions calculations, simplifying reporting.
• Under the simplification package, access to de minimis exemptions and carbon price deductions may depend on accurate documentation and traceability of declared emissions.

Scope for the UK

CBAM applies to all imports into the EU. The United Kingdom plans to implement its own CBAM rules starting in 2027. The UK CBAM is expected to cover a similar scope, but indirect emissions will not be included at least until 2029. Details over how a UK CBAM would look are still under discussion. Until the UK CBAM enters into force, goods imported from the UK remain subject to EU CBAM requirements.

Scope for the US

For U.S. goods entering the EU, CBAM applies if the product is in a covered sector (cement, iron & steel, aluminium, fertilizers, hydrogen, electricity).

The EU importer must report the embedded emissions during the transitional phase (2023–2025) and, from 2026, purchase CBAM certificates. U.S. manufacturers are expected to support compliance by providing verified emissions data.

The United States is also considering its own carbon-intensity-based trade programs, with several congressional proposals, such as the Foreign Pollution Fee Act (S.1325) and the Market Choice Act (MCA), aiming to levy fees on imported goods based on their carbon emissions. Both proposals are still in the early stages of the legislative process, and neither has been enacted into law.

Prepare your business for CBAM

• Confirm if your products fall within CBAM’s current or potential scope
• Implement emissions tracking and reporting aligned with CBAM requirements
• Ensure data is verified and ready to be provided to your importers
• Stay informed about future sector expansions and downstream product inclusion

How One Click LCA supports CBAM compliance

One Click LCA provides manufacturers with tools to calculate, document, and verify product-level emissions aligned with CBAM requirements. The platform supports compliance workflows, eases data exchange with importers, and helps manufacturers prepare for evolving carbon regulations. Calculating your products’ embodied carbon from your own data ensures that you report actual numbers of your product rather than a default industry average. This becomes even more important as you take measures to improve the environmental impacts of your products’ materials and processes. One Click LCA’s Product carbon tool and EPD Generator can help you calculate your products’ embodied carbon and other GHG emissions. One Click LCA's calculations, data, and output are aligned with the ISO 14067 and EN 15804+A2 standards. 

FAQ — Frequently asked questions about CBAM

Q1. Can I deduct a carbon price paid in the non-EU country of origin from my CBAM fees?

Yes. Importers can reduce CBAM certificates by proving a carbon price was paid in the country of origin, with independently certified emissions and payment evidence. One Click LCA supports compliant LCA calculations for embedded emissions.

Q2. Will the EU set default carbon prices for third countries under CBAM?

From 2027, the EU intends to publish annual default carbon prices in the CBAM Registry for countries with carbon pricing mechanisms. One Click LCA helps reporting reliable carbon data to apply actual values rather than generic default values.

Q3. What penalties apply for non-compliance or misreporting under CBAM?

Penalties apply for missing, late, or inaccurate CBAM reports, though minor breaches up to 10% or verified third-party errors may reduce them. One Click LCA helps reduce risk by structuring emissions data consistently and transparently.

Q4. When must importers (or declarants) submit CBAM declarations and certificates?

The first surrender of CBAM certificates will apply from 2027, covering 2026 imports. Certificates must be surrendered by 30 September each year, starting in 2027. One Click LCA helps importers prepare early to meet CBAM reporting requirements.

Q5. Are small importers exempt from CBAM obligations?

Yes. Importers below the 50-tonne annual threshold for covered goods are exempt, except for electricity and hydrogen. One Click LCA helps track volumes and emissions to assess exemption eligibility.

Q6. Do imports from the UK require CBAM reporting?

Yes. Currently, the UK is treated as a non-EU country under CBAM. The UK is developing its own CBAM rules, expected to start in 2027. One Click LCA supports emissions calculation for UK-origin goods using recognized LCA methodologies.