What CBAM Means
CBAM stands for Carbon Border Adjustment Mechanism. It is the EU system for putting a carbon price on imported goods to match the costs EU manufacturers already pay under the Emissions Trading System.
If you import steel, cement, aluminium, fertilisers, hydrogen, or electricity into the EU, CBAM applies to you. If you supply these products to EU customers, they need emissions data from you.
The UK is implementing its own version from January 2027.
Why CBAM Exists
EU manufacturers pay for their carbon emissions through the EU ETS. A German steel mill pays for every tonne of CO₂ it emits. This increases production costs.
Without CBAM, two things happen. EU manufacturers move production to countries without carbon pricing, shifting emissions rather than reducing them. Imports from countries without carbon pricing undercut EU producers because they avoid carbon costs entirely.
CBAM levels this. Imported steel faces the same carbon costs as EU-produced steel. The goal is preventing carbon leakage whilst encouraging cleaner production globally.
How CBAM Works
From October 2023 through December 2025, importers submit quarterly reports showing what they imported, the embedded carbon in those goods, and where production occurred. No financial payments during this transitional phase.
From January 2026, importers purchase CBAM certificates matching embedded emissions in their imports. Certificate prices track EU ETS allowance prices, currently around €70-85 per tonne CO₂.
Suppliers to EU importers must provide emissions data. This includes direct emissions from production processes and indirect emissions from electricity consumption. Without supplier data, importers use default values set deliberately high to incentivise actual data provision.
Who CBAM Affects
CBAM affects EU importers who must report emissions, purchase certificates, and surrender them annually. It affects non-EU suppliers who must provide emissions data to EU customers or risk their products becoming uncompetitive through high default values.
It affects UK businesses in both directions. UK exporters to the EU face EU CBAM obligations through their customers. UK importers will face UK CBAM obligations from January 2027.
Six sectors are currently covered: cement, iron and steel, aluminium, fertilisers, hydrogen, and electricity. Future expansions will likely include chemicals, polymers, and downstream products.
Why CBAM Is Challenging
Supply chain data collection creates the main challenge. Many suppliers have never monitored emissions to EU standards. They do not understand why emissions data is needed. They may claim it is commercially sensitive.
Calculation methodologies differ by production route and product type. System boundaries determine which emissions are included. Precursor materials create data dependencies through multiple supply tiers. Verification requirements from 2026 add cost and complexity.
Companies need to understand which products are covered, what data their suppliers can provide, how to calculate embedded emissions, and how to structure compliance processes. The regulations explain what must be done. Implementing those requirements for specific products and suppliers requires deeper analysis.
What You Need to Know
CBAM is mandatory for covered goods. Financial obligations start January 2026 for EU imports. Penalties apply for non-compliance.
Understanding CBAM at a general level differs from knowing how it applies to your products, your suppliers, and your supply chains. Generic knowledge explains the system. Implementation requires applying that knowledge to your specific circumstances.
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