The Carbon Border Adjustment Mechanism (CBAM) is a pivotal policy under the European Union’s Fit for 55 climate strategy, and is designed to reduce carbon leakage caused by difference in carbon pricing. By placing a carbon price on certain imported goods, CBAM can prevent the phenomenon that high-carbon industries shift to a low-carbon regulatory environment.
CBAM complements the EU Emissions Trading System (EU ETS) by applying equivalent carbon costs to imported products with highly embedded emissions. Its goal is to incentivize cleaner production methods globally and promote alignment with EU environmental standards.

1. Transition Phase (October 2023 – December 2025)
Importers must submit detailed reports of direct and indirect emissions along with any carbon price paid abroad, but they would not be taxed.
From October 2023 to July 2024, default emission factors could be used.
From August 2024, companies needed to gradually adopt measured emissions data.
By January 2025, only EU-recognized methodologies based on primary data were accepted.
2. Enforce Phase (From January 2026)
Importers will be required to purchase and surrender CBAM certificates equivalent to the emissions embedded in the imported goods.
In parallel, free allowances under the EU ETS will be phased out, reaching full removal by 2034.

CBAM initially covers imports of steel, aluminum, cement, fertilizers, electricity, and hydrogen. Emissions reporting includes direct emissions (on-site processes) and, for some products, indirect emissions (e.g. electricity used during production).
GHGs include CO₂, N₂O (fertilizer-specific), and PFCs (aluminum-specific).

It is essential to distinguish between CBAM emissions reporting and product carbon footprinting. While carbon footprinting accounts for full lifecycle emissions (“cradle to grave”), CBAM focuses strictly on emissions related to specific production stages, in line with EU ETS boundaries. As a result, companies cannot use product carbon footprint data directly in CBAM reports.

Exporters to the EU now must give priority to carbon transparency, build robust emissions monitoring systems, and ensure compliance with evolving carbon border regulations. Proactive engagement will not only reduce compliance risks but also improve market access and brand reputation in climate-conscious markets.