The Carbon Border Adjustment Mechanism (CBAM), which the European Union began fully enforcing in January 2026, is the world's first carbon pricing scheme applied to international trade. It aims to prevent carbon leakage — the phenomenon whereby CO₂ emissions shift to regions with looser regulations — by correcting the cost disparity between the carbon costs borne under EU ETS by EU-based manufacturers and those borne by imported goods from outside the EU.
A transition period began in October 2023, during which only reporting obligations applied with no payment required. The full enforcement phase launched in January 2026. For Japanese manufacturers and exporters, two pressures are rising simultaneously: higher export costs and increased disclosure requirements.
Covered Sectors and Schedule
CBAM currently covers six sectors: steel, cement, aluminum, fertilizers, electricity, and hydrogen. CO₂ — and certain other greenhouse gases — emitted during manufacturing processes subject to EU ETS are counted. The emissions calculation follows a proprietary methodology that does not conform to GHG Protocol standards; notably, electricity-derived CO₂ is included.
| Phase | Period | Details |
|---|---|---|
| Transition Period | October 2023 – December 2025 | Reporting obligation only; no payment required |
| Full Enforcement | January 2026 onwards | Certificate purchase obligation; declaration and payment required |
After full enforcement began, EU importers must submit a CBAM declaration and purchase and surrender CBAM certificates annually by May 31. Importers of CBAM-covered goods exceeding 50 tonnes per year are required to obtain "Authorized CBAM Declarant" status. Failure to comply incurs a fine of €100 per tonne of CO₂ equivalent.
Changes Under the Omnibus Simplification
In October 2025, the European Commission enacted the CBAM simplification regulation as part of the Omnibus package.
Exemption for Small-Volume Importers
Importers of CBAM-covered goods below 50 tonnes per year are now exempt from declaration and certificate purchase obligations. This reduces the regulatory burden on small and medium-sized importers and manufacturers, while requirements for large-volume importers remain unchanged.
Postponed Certificate Purchase Schedule
The start of certificate purchases for 2026 imports has been delayed from the original schedule to February 2027, effectively extending the preparation period for businesses.
Relaxed Use of Default Values
Applicants may now use default emissions values without prior justification. This reduces the cost of emissions data collection and provides meaningful relief particularly for mid-sized companies.
Certificate Pricing and Carbon Cost Calculation
CBAM certificate prices are linked to EU ETS auction prices (euros per tonne of CO₂ equivalent). For 2026, prices are based on quarterly averages; from 2027 onwards, weekly averages will apply.
Where a carbon price has already been paid during the production of imported goods, the equivalent amount may be deducted from the CBAM certificate cost. This deduction provision is an important relief measure for exporters in countries operating domestic carbon pricing schemes such as GX-ETS. Reducing manufacturing-process emissions through renewable energy procurement — such as off-site PPAs — is drawing attention as a practical tool for managing CBAM costs.
Impact on Japanese Companies
The most directly affected parties in Japan's EU-bound exports are steel and aluminum manufacturers and trading companies. METI (Ministry of Economy, Trade and Industry) has already begun developing sector-specific carbon emissions calculation guidelines covering CBAM-covered goods including steel products such as screws and bolts, providing a foundation for exporters to organize their own emissions data.
Steel and Aluminum Exporters
Exporters directly falling within the six covered sectors. They are required to obtain Authorized Declarant status, organize emissions data, and manage ETS-linked certificate costs. Leveraging GX-ETS carbon price deductions is directly tied to competitiveness.
Materials Suppliers
Companies embedded in the supply chains of end-manufacturers exporting to the EU. Because CBAM evaluates emissions across the entire supply chain, providing carbon intensity data has become a condition for continued business relationships.
Finished-Product Manufacturers (Future Preparedness)
No direct application to finished products exists at this time, but expansion to this category is under consideration for 2028 and beyond. CBAM cost pass-through at the materials procurement stage is already occurring, making decarbonization of design and procurement a medium- to long-term priority.
Outlook for Expansion
The European Commission is considering expanding CBAM beyond the current six sectors to finished products such as machinery and consumer electronics from 2028 onwards. If the UK and EU ETS systems are linked, UK-origin goods may become exempt from CBAM charges. While no direct application to finished-product manufacturing exists yet, demands for emissions data tracing back through supply chains have already begun. Companies that consider themselves outside the scope should still prepare for indirect exposure through their customers' CBAM compliance obligations.
Conclusion
CBAM entered full operation in 2026. The Omnibus simplification has reduced procedural burdens, but the mechanism itself has not been weakened. Direct exporters of steel and aluminum must urgently leverage GX-ETS carbon price deductions and organize their emissions data. For finished-product manufacturers, building the capability to monitor not only their own emissions but also the carbon intensity of their suppliers will serve as preparation for the post-2028 expansion of the scheme.