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 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. Alongside these regulations, 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 full-rounded EU policy landscape driving transparency, accountability, and decarbonization across supply chains both within and outside the EU.

Who does it affect? 

CBAM applies to EU importers, but it directly impacts non-EU manufacturers who must supply carbon data to support compliance. CBAM currently applies to imports of goods in six sectors: cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen. These sectors were selected due to their high greenhouse gas emissions and risk of carbon leakage.

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. The EU may expand the scope to include additional product categories and downstream goods after 2026.

How does CBAM work?

CBAM requires EU importers of certain 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 and are priced according to the weekly average of EU ETS allowance auctions.

Emissions reporting 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.

Reporting requirements for simple vs. complex Goods under CBAM

Simple goods: For goods produced in processes with no precursors carrying embedded emissions (e.g. cement clinker, basic steel), importers have been required to report actual embedded emissions since the start of the transitional period on 1 October 2023. The calculation must follow the method in Annex IV of the CBAM Regulation, accounting for direct and, where relevant, indirect emissions.

While default values may be used temporarily if actual data cannot be adequately determined, they are only a fallback mechanism and must be replaced once reliable data becomes available. 

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 1 July 2024. This rule requires that:

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

Importers may 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 by themselves satisfy CBAM’s regulatory requirements.

CBAM implementation timeline & phases

CBAM is being rolled out in two phases:

• Transitional phase: October 2023 to December 2025. Importers must report embedded emissions of covered goods, but no payments are required.
• Definitive phase: Begins in January 1, 2026. From this point, importers will enter the compliance phase where certificate obligations will apply. However:
  • The first surrender of CBAM certificates will take place in 2027, covering emissions from goods imported in 2026.
  • As of 1 February 2027, CBAM certificates will be sold via the EU’s central platform.
  • From 2027 onward, authorised 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).
  • The first CBAM declaration and surrender, covering 2026 imports, must be completed by September 30, 2027.

Key CBAM requirements for manufacturers

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 four key areas:

1. Report emissions using CBAM methodology

• Scope 1 (direct) emissions: Always included. Manufacturers must report process emissions (e.g., calcination, smelting, combustion) and on-site fuel use according to the formulas and system boundaries in Annex IV of the CBAM Regulation.
• Scope 2 (electricity) emissions: Included only for certain goods and processes, depending on the role of electricity in production.
  
  
  • Aluminium: Scope 1 + Scope 2 are both included (electricity use in electrolysis is a major emissions source).
    
    
  • Cement: Scope 1 emissions from calcination and fuel combustion are key; electricity emissions are generally excluded unless explicitly required.
    
    
  • Iron & steel: Scope 1 is always reported; Scope 2 applies mainly to electricity-intensive routes such as electric arc furnace production.

2. Provide high-quality, verified data

• Manufacturers must calculate embedded emissions using CBAM’s prescribed methodology (Implementing Regulation, Article 4).
• Sharing third-party verified data with your EU importers helps avoid the use of conservative default values, which may make your product appear more carbon-intensive and less competitive.
• Under the simplification package, access to de minimis exemptions and carbon price deductions may depend on accurate documentation and traceability of declared emissions.

3. 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), when they are gathering data to prepare for full compliance.

4. Prepare for digital compliance

• Familiarise 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.

Why does this matter?

Manufacturers who prepare early can differentiate their products by demonstrating lower verified emissions, reducing the risk of higher CBAM costs for EU buyers and strengthening their market position when CBAM fully applies from 2026.

Reporting & data verification

Emissions data must follow 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.

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 fertilisers 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 1 February 2027, covering emissions embedded in goods imported in 2026.
• Certificates must be surrendered by 30 September each year, starting in 2027 for the 2026 reporting year.

3. Quarterly obligation reduced from 80% to 50%

• From 2027 onward, authorised 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)

• From 2027, the EU may publish default annual carbon prices for specific third countries to simplify and standardise carbon price deductions where actual verified payment data is not readily available.

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.

CBAM registry & importer authorisation

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

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

Geographic scope & UK CBAM

CBAM applies to all imports into the EU. The United Kingdom is expected to implement its own CBAM rules starting in 2027. The UK CBAM is expected to cover a similar scope but with stricter treatment of indirect emissions, such as heat and steam. Details over how a UK CBAM would look are still under discussion. Until the UK CBAM enters into force, goods imported from the UK into the EU remain subject to EU CBAM reporting requirements.

Scope for the U.S.

For U.S. goods entering the EU, CBAM applies if the product is in a covered sector (cement, iron & steel, aluminium, fertilisers, 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 Border Adjustment Mechanism (CBAM), with several congressional proposals — such as the Foreign Pollution Fee Act (S.1325), the Clean Competition Act (S.4355), and the Market Choice Act (MCA) — aiming to levy fees on imported goods based on their carbon emissions. All three proposals are still in the early stages of the legislative process, and none have been enacted into law.

Preparing your business for CBAM

• Identify 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. Our tool calculations, data, and output are aligned with the ISO 14067 and EN 15804+A2 standards. 

FAQ — Frequently asked questions about CBAM

Q1. What happens if a non-EU producer has already paid a carbon price in its country of origin?

If a non-EU producer has already paid a verified carbon price in a third country for the embedded emissions of the exported goods, that amount can be deducted from the importer’s CBAM certificate obligation. It’s important, though, that the carbon price paid is recognized by the EU under CBAM rules (i.e. it must be verified and meet equivalence criteria).

Q2. What penalties apply for non-compliance or misreporting under CBAM?

Under the 2025 simplification package, penalties may be reduced in cases of minor exceedances of the de minimis threshold (up to 10%) or when proven errors result from verified third-party data.

Q3. When must importers (or declarants) submit CBAM declarations in the definitive phase?

The first purchase and surrender of CBAM certificates will apply from 2027, covering imports made in 2026. Certificates must be surrendered by 30 September each year, starting in 2027.

Q4. Will small importers be exempt under CBAM?

Yes. A de minimis exemption now applies to importers whose total annual imports of CBAM-covered goods (cement, iron & steel, aluminium and fertilisers) do not exceed 50 tonnes in total. This exemption does not apply to electricity or hydrogen. 

Q5. Do I need to report the import of CBAM goods originating from the UK?

Yes. During the transitional period, EU importers must report the embedded emissions of CBAM-covered goods originating from the United Kingdom, as the UK is currently treated as a non-EU country under CBAM. The UK is developing its own CBAM rules, expected to start in 2027, but until then, UK-origin goods remain subject to EU CBAM reporting requirements.