The CBAM (Carbon Border Adjustment Mechanism), which the EU began applying in full in January 2026, is the world's first carbon-pricing system for international trade. It is designed to prevent carbon leakage, where CO2 emissions shift to jurisdictions with looser rules, by narrowing the cost gap between the EU ETS carbon costs borne by EU manufacturers and imports from outside the EU. Its legal basis is Regulation (EU) 2023/956, and it is designed to move in step with the gradual phase-out of free allowances under the EU ETS.
After a transition period of roughly two years and three months from October 2023, when only reporting obligations applied and no payment was due, CBAM entered its full charging phase in January 2026. Charges are being phased in from 2026 to 2034 in line with the reduction of EU ETS free allowances. For companies exporting covered materials and energy to the EU, and for finished-goods manufacturers that use those inputs, the pressure is twofold: higher trade cost and heavier emissions-data requirements.
Covered Goods and Schedule
CBAM currently covers six sectors: steel, cement, aluminum, fertilizers, electricity, and hydrogen. CO2, and some greenhouse gases, emitted in production processes covered by the EU ETS are counted. Companies should note that emissions are calculated under CBAM-specific rules rather than the GHG Protocol, and electricity-derived CO2 is included.
October 2023 - December 2025
Transition period
Only emissions reporting was required; no certificate payment was due for roughly two years and three months.
January 2026 onward
Full implementation
Authorized CBAM declarant rules and certificate purchase obligations began. Charges are phased in from 2026 to 2034.
February / September 2027
Certificate sales and first declaration
CBAM certificate sales begin in February 2027. The first annual declaration for 2026 is due on September 30, 2027.
After full implementation, EU importers must submit an annual CBAM declaration and purchase and surrender CBAM certificates corresponding to declared embedded emissions, with special treatment for electricity and hydrogen. The first annual declaration for 2026 is due on September 30, 2027, after the original end-May deadline was pushed back through the simplification process. Importers of more than 50 tonnes per year of CBAM-covered goods must obtain authorized CBAM declarant status.
Changes Under the Omnibus Simplification
The European Commission introduced CBAM simplification as part of the Omnibus package. The design lightens procedures while preserving coverage of the vast majority of chargeable emissions.
Three Changes Under Omnibus Simplification
01
De minimis exemption below 50 tonnes
Importers with annual cumulative imports below 50 tonnes of CBAM-covered goods are outside the declaration and certificate purchase obligations. This eases the burden on smaller importers while still leaving about 99% of total emissions covered by charging.
02
Later certificate sales and declaration timing
Certificate sales for 2026 imports begin in February 2027, and the declaration deadline was also pushed back. Companies effectively gained more preparation time.
03
Easier use of default values
Applicants can use default emissions values without prior justification, reducing the initial cost of emissions data collection.
Late-2025 Implementing Rule Updates
CBAM's detailed rules are still being built out under Regulation (EU) 2023/956, so relying only on the transition-period understanding leads to practical mistakes. The latest points to track are as follows.
Verification and calculation of embedded emissions (December 2025): implementing rules were adopted on verification principles and calculation methods for embedded emissions. They make the measurement and verification basis for declaration data more concrete.
Calculation of free allocation adjustment (December 16, 2025): rules were set for calculating the adjustment corresponding to free allowances received by EU producers, which reduces the number of CBAM certificates required.
Clarification of territorial scope (October 2025): implementing rules extended CBAM application to goods brought to continental shelves and exclusive economic zones.
Boundary treatment: for aluminum and steel products, work is moving toward excluding embedded emissions from production processes outside the EU ETS boundary.
June 2026 Practical Updates
On June 23, 2026, the European Commission published a factsheet on actual and default values in CBAM declarations. Default values may help companies start the initial compliance process, but suppliers of lower-carbon materials have a stronger incentive to provide measured and verified emissions data because the choice directly affects CBAM cost and procurement conditions. On June 26, 2026, the Commission also updated the list of National Competent Authorities. Confirming which NCA the EU importer will use for authorised declarant status and registry access is now as important as preparing emissions data on the exporter side.
Certificate Prices and Carbon Cost Deductions
CBAM certificate prices are linked to EU ETS allowance auction prices in EUR/tCO2. If a carbon price has already been paid during production of imported goods, the corresponding amount can be deducted from certificate costs. For third-country carbon price deductions, from 2027 the European Commission is expected to publish annual average deduction prices in EUR/t-CO2e, making this an important relief mechanism for exporters in countries with domestic carbon-pricing systems such as carbon taxes or ETS schemes. Renewable electricity procurement, including off-site PPAs, is also a practical way to reduce manufacturing emissions and manage CBAM cost.
Business Impact
The most directly affected parties are companies exporting steel, aluminum, fertilizers, cement, hydrogen, or electricity to the EU, and the EU importers that bring those goods into the customs territory. The legal obligation sits with the EU importer, but importers need embedded-emissions data from non-EU suppliers, so the operational burden spreads across the supply chain.
Types of Companies Affected
01
EU importers and authorised declarants
These entities import covered goods into the EU. They need authorised declarant status, annual declarations, certificate purchase and surrender processes, and NCA-facing compliance management.
02
Non-EU material exporters
Suppliers of covered materials such as steel and aluminum need measured and verified emissions data, proof of eligible third-country carbon prices, and a credible explanation of low-carbon material attributes.
03
Materials suppliers
These suppliers sit in the supply chains of end manufacturers exporting to the EU. Because CBAM evaluates embedded emissions, the ability to provide carbon intensity data may become a condition for continued business.
04
Finished-goods manufacturers (future readiness)
Finished goods are not directly covered for now, but expansion is under consideration. CBAM cost pass-through is already appearing at the materials procurement stage, making lower-carbon design and procurement a medium-term issue.
Outlook for Future Expansion
The European Commission is considering expanding CBAM beyond the current six sectors to finished goods such as machinery and home appliances. If UK-EU ETS linkage is established, UK-origin goods could become exempt from charges. Finished-goods manufacturers are not directly covered today, but requests for upstream supply-chain emissions data have already begun. Companies that consider themselves out of scope should still prepare on the assumption that customers' CBAM compliance will affect them indirectly.
Summary
CBAM became fully operational in 2026, with charging phased in from 2026 to 2034. Omnibus simplification reduced procedural burden, including the 50t de minimis exemption, but the system itself has not been rolled back. Exporters of covered materials urgently need to use third-country carbon price deductions where available and build emissions data systems. Finished-goods manufacturers need systems that track not only their own emissions but also supplier carbon intensity as preparation for future expansion. The practical certificate and declaration workflow is covered in the CBAM declaration workflow guide.
