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CBAM in 3 Minutes

Updated: Nov 8, 2023

A beginner's guide to understanding the Carbon Border Adjustment Mechanism (CBAM) in just 3 minutes. In 2021, the EU introduced the Carbon Border Adjustment Mechanism (CBAM) as part of its ambition to achieve climate neutrality by 2050. Designed to supplement the EU Emissions Trading System (EU ETS) established in 2005, CBAM requires businesses importing goods into the EU to pay tax on the CO2 emissions generated during their production. This is to ensure that European manufacturers aren't disadvantaged due to EU's stringent environmental regulations and that there is no relocation of high greenhouse gas emitting industries to countries outside the EU (Carbon Leakage). While CBAM presents challenges, it also opens doors to global alignment on carbon pricing, fostering sustainable business practices and aiding the fight against climate change.

CBAM - Which businesses are impacted?

Key sectors affected by CBAM regulations include:

  • Iron and steel as well as products from iron and steel

  • Aluminum products thereof

  • Cement

  • Fertilizers

  • Hydrogen

  • Electricity

Products like screws, sheeting, and pipes also fall under the CBAM ambit.

CBAM's Transition Period:

From October 1, 2023 to December 31, 2025, a transitional phase kicks in. During this time, importers must:

  • Register in the CBAM transitional registry.

  • Document and calculate the emissions resulting from production of imported goods.

  • Submit quarterly CBAM reports, with the first due by January 31, 2024.

Pricing and Payment:

By January 1, 2026, the CO2 import tax becomes active. Companies then need to buy CBAM certificates, equivalent to their embedded CO2 emissions in imports. The price of these certificates is based on the EU ETS's average weekly price. If an exporting nation already has a CO2 pricing mechanism, and the fees have been settled, this sum will be deducted by EU customs.

How does CBAM affect businesses?

CBAM necessitates inter-departmental collaboration for accurate reporting. The calculation of emissions demands rigorous data analysis. Moreover, this mechanism will compel businesses to integrate CO2 costs into their economic models, potentially leading to cost changes for various products.

Why CBAM matters globally:

By acknowledging CO2 taxes from exporting countries, CBAM incentivizes other nations to develop carbon pricing systems. This could spearhead a global movement towards carbon pricing, pressing businesses everywhere to cut their emissions.

How can companies prepare?

Companies should familiarize themselves with the affected goods list and prepare for the reporting requirements.

The provisional CBAM registry has been launched for companies to register. Additionally, businesses will need to calculate and document the direct and indirect emissions from their imported goods' production processes. The EU Commission offers e-Learning sessions and webinars to assist companies in understanding and complying with the CBAM regulations.

FAQ Snapshot:

How do I get more information?
  • Use the offers of the EU Commission: EU CBAM SiteEU Nano-Learning on CBAMEU Customs & Tax EU Learning PortalCommission Implementing Regulation on CBAM

  • Gather more information in the Guidance for plant operators in third countries.

  • Read through the EU Excel file for querying within the supply chain. If no values are available or the supplier does not or cannot communicate them, default values can be used, at least for the short term, which are to be stored in the reporting portal.

  • You can find all of it in our CBAM Directory

  • If you still have questions: get in contact with us to see how we can support your business on this complex journey

How do I prepare for the CBAM transition?
  • Businesses should scrutinize supply chains, gather relevant data, calculate emissions, and establish necessary reporting mechanisms. We can help on getting the information you need.

When do I have to pay for CBAM?
  • Only from January 1, 2026 on.

Are there penalties for non-compliance?
  • Firms not adhering to CBAM face financial and legal repercussions.

Are there any reductions if there were prior carbon payments?
  • Yes, if businesses prove they've already paid a CO2 price in the exporting nation.

What does the documentation for emissions include?
  • Accurate data on production processes, energy sources, and emissions factors.

CBAM Foto with CBAM font with worldscore color gradient from pink to blue


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