Carbon Border Adjustment Mechanism

The Carbon Border Adjustment Mechanism (CBAM) is an EU climate policy instrument established by Regulation (EU) 2023/956. Its purpose is to stop the carbon price paid under the EU Emissions Trading System from being undermined by production shifting to third countries with weaker climate rules – so-called carbon leakage. CBAM does this by extending an equivalent carbon price to imported goods in the same product groups. The initial scope covers particularly emissions-intensive and trade-exposed sectors: iron and steel, aluminium, cement, fertilisers, electricity and hydrogen, each defined by the CN codes listed in Annex I to the Regulation. What is priced are the emissions embedded in the goods, that is the greenhouse gas emissions arising from the production process in the country of origin.

CBAM is being introduced in two stages. During the transitional period from 1 October 2023 to 31 December 2025 the obligation was purely one of reporting: declarants had to file quarterly CBAM reports on import volumes and embedded emissions, with no financial charge attached. The definitive regime applies from 1 January 2026. Covered goods may then only be imported by an authorised CBAM declarant, an annual CBAM declaration is required, and CBAM certificates must be surrendered for the embedded emissions, priced by reference to the auction price of EU emission allowances. A carbon price demonstrably already paid in the country of origin can be deducted. The timetable was adjusted by the Commission's Omnibus I simplification package in 2025, which introduced a de-minimis threshold of 50 tonnes net mass per importer per year, deferred the start of certificate sales and reset the declaration deadlines. Because these dates have already moved once, companies should always verify the current wording of the Regulation and its implementing acts rather than rely on older schedules.

In practice CBAM is above all a supply-chain data challenge. Embedded emissions must in principle be determined at installation level at the producer in the third country; default values are available only in a limited and transitional way. Importers therefore need robust processes to collect, sanity-check and audit-proof emissions data, installation identifiers and evidence of any carbon price already paid, and under the definitive regime verification by accredited verifiers is added on top. In Germany the competent national authority is the German Emissions Trading Authority (DEHSt) at the Federal Environment Agency, which also imposes penalties for missing or incorrect reports. Substantively, CBAM overlaps heavily with greenhouse gas accounting under the GHG Protocol and with climate reporting under ESRS E1, so it pays to build one shared data basis serving the sustainability statement, the product carbon footprint and the CBAM declaration. An extension of the scope to downstream products and anti-circumvention rules are under discussion at EU level and should be monitored.