Let’s Get to Know More with The EU Carbon Border Adjustment Mechanism (CBAM)

What is CBAM? 

CBAM is a carbon border tax. It is designed to ensure that the EU’s climate policies do not cause "carbon leakage", where companies move production to countries with weaker environmental rules to save money, shifting rather than reducing global emissions. By placing a price on the carbon emitted during the production of certain goods imported into the EU, the mechanism ensures that foreign products face the same costs as those made within the bloc under the EU Emissions Trading System (ETS), which requires companies to pay for the right to emit carbon dioxide. 

Which Sectors are Affected? To understand CBAM's impact, it is important to see which industries are subject to its requirements. 

CBAM initially targets the most carbon-intensive industrial sectors: 

• Iron and Steel 

• Aluminium 

• Cement 

• Fertilisers 

• Electricity 

• Hydrogen 

The EU plans to expand this list in the coming years to include processed products and possibly more sectors like chemicals and plastics. This potential expansion highlights the need to monitor regulatory developments. 

Timeline of Implementation 

Phase 1: The Definitive Period (2026 – 2034) 

This is is the most important window for Non EU exporters. The system is now a live tax mechanism, not a pilot. 

• 1 January 2026: Financial obligations commence. Importers must be registered as "Authorised CBAM Declarants" to bring covered goods into the EU. 

• 31 August 2026: Deadline for the final "Transitional" quarterly report (covering Q4 2025). 

• 1 February 2027: The first window opens for purchasing CBAM certificates to cover emissions from goods imported during 2026. 

• 31 August 2027: The first Annual CBAM Declaration is due. Importers must surrender certificates equivalent to the total verified embedded emissions—the carbon released during manufacture—of their 2026 imports. 

• 2026–2034: During this period, the EU will reduce free allowances to domestic industries each year. As these allowances drop, CBAM costs for importers will rise until all embedded carbon is taxed. 

Phase 2: Scope Expansion (2026 – 2030) 

• By End of 2026: The Commission will complete a review to decide whether to include organic chemicals and polymers (plastics) in the scope. 

• By 2030: The goal is to include all sectors currently covered by the EU Emissions Trading System, which could bring paper, pulp, and glass into the mechanism. 

  
  

A Global Domino Effect? 

The EU is the first to implement such a scheme, but likely not the last. The UK government has already announced plans to introduce its own UK CBAM by 2027 to protect British industry from being undercut by high-emission imports. 

Conclusion 

CBAM represents a fundamental shift in international trade. 'Greenness' is now a financial liability, not just a social responsibility metric. Businesses must ensure data transparency and invest in low-carbon technology to access the market.