Introduction

The European Union’s Carbon Border Adjustment Mechanism (CBAM) is a new regulation designed to reduce carbon emissions and encourage low-carbon production worldwide. CBAM applies to certain imported goods, requiring businesses to report embedded carbon emissions and purchase carbon certificates based on the EU Emissions Trading System (ETS).

For businesses importing carbon-intensive products into the EU, understanding CBAM is essential to ensure compliance, manage costs, and optimise supply chains.

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What is CBAM?

CBAM is a carbon pricing mechanism for imported goods. Its main objectives are:

• Prevent carbon leakage: Avoid situations where production moves outside the EU to escape carbon costs.
• Encourage cleaner production globally: Incentivise low-carbon manufacturing methods.

Under CBAM, importers pay a carbon cost equivalent to the EU ETS price that EU producers must pay, ensuring a fair competitive environment.

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Which Goods Are Covered by CBAM?

CBAM currently applies to high-emission sectors, including:

• Cement
• Iron and steel
• Aluminium
• Fertilisers
• Electricity
• Certain hydrogen products

Tip: CBAM may expand in the future to other carbon-intensive goods, so businesses should monitor updates regularly.

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How CBAM Works

From an operational perspective, CBAM introduces new compliance obligations for businesses importing affected goods.

1. Carbon Emissions Declaration

Importers must declare CO₂ emissions embedded in imported products. This data can be:

• Provided by verified suppliers
• Calculated using default EU values

2. Purchase of CBAM Certificates

Based on the declared emissions, businesses purchase CBAM certificates. The certificate price aligns with the current EU ETS carbon price.

3. Quarterly Reporting

Importers must submit quarterly CBAM reports, including:

• Imported product types and quantities
• CO₂ emissions per product
• Number of CBAM certificates surrendered

4. Integration with Customs Procedures

CBAM reporting is integrated into import declarations, ensuring carbon costs are accounted for alongside customs duties.

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Steps for Businesses to Ensure CBAM Compliance

To comply with CBAM regulations:

1. Identify imports subject to CBAM — check if goods fall under the affected sectors.
2. Collect emissions data — work with suppliers or use default values.
3. Register as a CBAM declarant — with the relevant EU authority.
4. Maintain detailed records — store documents for at least 10 years.
5. Consider low-carbon sourcing strategies — reduce CBAM costs.
6. Monitor EU ETS prices — certificate costs fluctuate.

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Practical Tips for Businesses

• Start Early: Quarterly reporting deadlines require advance preparation.
• Collaborate with Suppliers: Verified emissions data ensures accuracy.
• Budget for CBAM Certificates: Prices change with EU ETS market trends.
• Optimise Supply Chains: Source lower-carbon products where possible.
• Stay Updated: EU CBAM guidance may evolve over time.

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CBAM vs Duties and VAT

CBAM is not a customs duty or VAT. It is a separate carbon cost applied on top of standard import duties to reflect the carbon price EU producers face. Proper integration into accounting and customs workflows ensures compliance and avoids penalties.

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Conclusion

The Carbon Border Adjustment Mechanism (CBAM) represents a major regulatory shift for businesses importing carbon-intensive goods into the EU. Compliance requires accurate carbon reporting, certificate purchases, and regular monitoring.

Early preparation allows businesses to:

• Avoid fines or compliance penalties
• Manage CBAM-related costs effectively
• Position themselves as environmentally responsible and aligned with EU climate objectives

Start reviewing your CBAM-relevant imports, gather supplier emissions data, and implement reporting processes to ensure seamless compliance.