CBAM Explained: The EU’s Carbon Border Adjustment Mechanism and What It Means for You

The Carbon Border Adjustment Mechanism, commonly known as CBAM, is the European Union’s groundbreaking policy tool designed to tax the carbon emissions embedded in certain imported goods. Its primary aim is to prevent carbon leakage, where companies might relocate production to countries with weaker climate rules, or where EU industries lose out to imports made without similar environmental costs.

CBAM does this by creating a carbon pricing system for imports that mirrors the EU’s own emissions trading scheme (EU ETS). Starting with a transitional reporting phase in 2023 and moving into full implementation in 2026, CBAM will require EU importers to report and eventually pay for the greenhouse gas emissions associated with specific carbon-intensive goods, including steel, aluminum, cement, fertilizers, electricity, and hydrogen.

This makes CBAM not just a trade regulation but a climate accountability mechanism with far-reaching implications for supply chains, sourcing strategies, and ESG reporting. Companies that import affected products into the EU will need to track product-level carbon emissions, coordinate with suppliers globally, and build internal systems for data management and regulatory compliance. In short, CBAM brings climate transparency to the point of entry.

On 26 February 2026, the European Commission proposed an Omnibus Simplification Package to simplify its implementation and reduce administrative burdens on importers, particularly smaller businesses. One key change is a new applicability threshold based on the mass of imported goods, potentially exempting many importers from CBAM obligations. Proposed changes are subject to the EU’s legislation process before becoming the law.

How CBAM Works

CBAM applies a carbon cost to imported goods that reflects the price EU manufacturers pay under the Emissions Trading System (EU ETS). If you import covered products into the EU, you must account for the greenhouse gas emissions produced during manufacturing. Starting in 2026, you will need to:

• Calculate the embedded emissions in each imported product
• Submit an annual CBAM declaration
• Purchase CBAM certificates equal to the emissions reported

The price of a CBAM certificate mirrors the weekly average price of EU ETS allowances. If the foreign producer has already paid a carbon price, you can deduct that amount. This prevents double pricing for the same emissions.

For now, the mechanism applies only to certain product categories: iron and steel, aluminum, cement, fertilizers, electricity, and hydrogen. You calculate emissions per product type and submit a report each quarter during the transition period. From 2026, you will submit annual declarations and pay for certificates covering total emissions reported.

CBAM calculates emissions using three options: actual emissions data from the producer, approved equivalent methods, or default values provided by the European Commission. Default values apply only in specific cases and generally assume higher emissions. Using actual data from suppliers can lower your reported emissions and reduce your CBAM costs.

The CBAM system ties directly to the EU climate policy. As the bloc reduces free carbon allowances for local producers, CBAM increases the carbon cost for imported goods to match. This prevents emissions shifting outside the EU and pushes suppliers toward lower-emission production methods.

If you import covered goods, CBAM affects your procurement, compliance, and supplier relationships. You’ll need reliable carbon data from suppliers, systems to track product-level emissions, and a plan to manage certificate purchases once the financial obligations start.

CBAM Scope: Who Is Affected?

CBAM applies to companies that import specific goods into the EU’s customs territory, across all EU member states, and there are no exemptions based on the country of origin (however, if the exporting country has a carbon pricing system in place, you can account for that in your reporting and reduce your cost obligation).

Companies are in scope if they are the importer of record for these goods. That includes EU-based manufacturers, distributors, or traders sourcing from non-EU suppliers. CBAM applies to whoever clears the goods through EU customs, even if they are not an end user of a product.

Suppliers located outside the EU are not directly regulated under CBAM, but their data is essential. You’ll need information from those suppliers to calculate and report the emissions embedded in the goods they produce. Without accurate data, you may have to rely on default values, which can increase your certificate costs.

As such, you’ll need to engage with suppliers, collect product-level emissions data, and track your import volumes throughout the year. The mechanism adds new responsibilities to procurement, trade compliance, and sustainability teams.

CBAM Reporting Requirements and Timeline

CBAM rolls out in two phases. The first is a transitional period focused on reporting. The second introduces financial obligations. Each phase has distinct requirements that affect how you collect data, work with suppliers, and prepare internal systems.

If you import CBAM-covered products, you are required to report the embedded emissions from those imports. From 2026, you will also need to purchase and surrender CBAM certificates to cover those emissions. The timeline and rules differ depending on the phase.

The Transitional Phase: 2023 to 2025

From October 2023 through the end of 2025, you must report emissions, but you do not have to pay. This period gives importers time to build internal processes, engage suppliers, and identify data gaps before financial penalties apply.

During this phase, you should review your supply chain for CBAM exposure, build systems for emissions tracking, identify and onboard suppliers into carbon data reporting processes, and register as an authorised CBAM declarant if you plan to continue importing into 2026 and beyond. You should also:

• Submit quarterly reports covering embedded direct emissions from imports
• Use actual emissions data from producers where possible. If actual data is unavailable, you may use default or equivalent methodologies (default use is time-limited)
• Have traceable data, though no certificate purchases or third-party verification are required

You must file each report by the end of the month following the end of each calendar quarter. For example, Q4 2023 reports were due by January 31, 2024.

Full Implementation: From 2026

From January 2026, financial obligations begin. You will need to report annually and buy CBAM certificates to match the embedded emissions in your imports. Here’s what changes:

• Submit an annual CBAM declaration covering all imports from the previous year
• Surrender CBAM certificates equal to the total emissions reported
• Purchase certificates at a price based on the weekly EU ETS average
• Deduct carbon prices paid in the country of origin (documentation needed)
• Have emissions data verified by an independent third party
• Use the CBAM registry to manage declarations, certificates, and supporting documents

You must be registered as an authorized CBAM declarant before importing CBAM-covered products in 2026. Authorization is granted by your national authority. The EU has simplified the process by removing the consultation requirement and introducing digital tools.

You’ll need to budget for certificate purchases, gather verifiable emissions data at the product level, and make sure your suppliers can support those requirements. Delays, gaps, or incorrect data could increase costs or trigger penalties.

How CBAM Fits with Other Climate and ESG Regulations

CBAM doesn’t stand alone. It links directly to the EU’s carbon market and overlaps with other emissions and ESG disclosure rules. If you manage compliance or sustainability reporting, you’ll need to understand how CBAM connects to these frameworks.

CBAM and the EU Emissions Trading System (EU ETS)

CBAM mirrors the EU ETS. While EU manufacturers pay for emissions through the ETS, CBAM applies the same carbon cost to certain imports. If you bring in steel, aluminum, or other CBAM-covered products, you’ll face similar charges through CBAM certificates.

The EU is phasing out free ETS allowances for EU producers in CBAM sectors from 2026 to 2034. As these disappear, CBAM will expand. This balances competition between local and foreign producers.

CBAM and ESG Reporting Requirements

CBAM requires you to report product-level emissions. This aligns with data you may already collect under CSRD, GHG Protocol, or national rules like California’s SB 253. If you track scope 3 emissions from purchased goods, you’re already doing part of the work.

Use the same methods and standards across your reports. GHG Protocol methods, lifecycle assessments, and verified supplier data can support both CBAM and ESG disclosures. If you run sustainability reporting, loop in your trade and compliance teams. CBAM data should feed into your emissions disclosures. Doing this early will help avoid mismatches in public reports.

Potential Future Developments

CBAM is the first mechanism of its kind, but others are watching. The US, Canada, and Japan are considering similar carbon pricing for imports. Global suppliers may soon face carbon costs in multiple regions.

Trade policy is also changing. The EU designed CBAM to follow WTO rules, but some countries have raised objections. If you operate across borders, track how carbon tariffs evolve. What applies in the EU today could show up elsewhere tomorrow.

The EU may expand CBAM after 2030 to cover more products and emissions. Indirect emissions or downstream products could be next. If you want to prepare, map your carbon data now, not just for current imports, but across your supply chain.

Simplifying CBAM: Recent Changes

In early 2025, the EU proposed a set of updates, known as the Omnibus or Simplification Package, to make CBAM easier to manage before full implementation in 2026. These changes affect reporting, emissions data, and who needs to comply. If you’re importing CBAM goods, you’ll need to review how these updates affect your reporting and cost planning.

Small Importer Exemptions: The 50-Tonne Threshold

If you import less than 50 tonnes per year of a CBAM-covered product, you no longer need to report or buy certificates. This threshold applies per product group. You’ll still need to monitor your annual import volumes. Once you cross 50 tonnes for a product, you must comply with that entire category for the full year.

This change removes the earlier €150 customs duty exemption and replaces it with a more meaningful volume-based rule. If you run a small or mid-size business with limited imports, this may remove your CBAM reporting altogether.

Reporting, Authorization, and Admin Updates

The EU streamlined the process to become an “authorized CBAM declarant.” You no longer need to complete the previously required consultation step. You can now appoint a third party to handle CBAM reporting for you. If you work with customs brokers or consultants, they can take over your filings. You stay responsible, but they can manage the process.

The EU also launched a single digital CBAM portal. You’ll use this to submit data, manage certificates, and communicate with regulators. This replaces fragmented country-by-country processes. If your suppliers have verified emissions data, they can upload it to the CBAM registry. You’ll then be able to reference it directly in your reports, saving time and avoiding duplication.

Adjusted Certificate Purchase and Reporting Deadlines

You’ll still start tracking emissions from 1 January 2026. But the first CBAM certificates aren’t due until 2027. That gives you more time to collect data, work with suppliers, and complete your annual report.

The deadline to submit the full CBAM declaration moves from 31 May to 31 August each year. You must surrender CBAM certificates by 31 October. These two-month extensions give you more time to finalize calculations and buy certificates after you’ve submitted your declaration.

Revised Emissions Reporting Scope

CBAM will continue to focus on direct emissions, including emissions from electricity used in production. You don’t need to include indirect emissions from heat, steam, or cooling. This narrows the emissions footprint you need to track and simplifies supplier data requests.

For now, the EU has excluded them from the initial CBAM carbon pricing regulation to harmonize with the EU ETS in its current form and to keep the focus on emissions that are measurable and verifiable with available data. For importers, this avoids having to account for hard-to-verify upstream sources. For suppliers, it reduces the reporting burden and the need for complex calculations.

Addressing CBAM Compliance Challenges

CBAM compliance goes beyond filing a few reports. You’ll need to manage emissions data from non-EU suppliers, align your reporting with EU methodologies, and build new internal processes. These requirements cut across procurement, sustainability, compliance, and finance teams. Below are the main operational and strategic challenges you’ll need to address ahead of full implementation.

Data Collection and Accuracy

CBAM requires accurate, product-level emissions data for every shipment you import. In most cases, that means requesting and receiving emissions data directly from your non-EU suppliers. Many suppliers don’t track this data in a way that aligns with CBAM rules, or don’t track it at all. Some may only have facility-wide averages. Others may provide emissions figures based on incompatible methods or metrics.

If you can’t obtain usable data, you’ll need to rely on default values published by the Commission. These defaults are typically set higher than most real-world values, which means you’ll likely pay more in certificates than necessary. To reduce cost and risk, you’ll need to establish processes for identifying which suppliers are in scope, collecting the right data, and checking that it meets CBAM requirements.

Supplier Engagement and Collaboration

You won’t be able to comply with CBAM without the cooperation of your suppliers. While CBAM doesn’t regulate non-EU producers directly, you need their input to calculate and report emissions. That means working with suppliers who may be unfamiliar with carbon reporting and lack systems to generate the data you need. Some may resist sharing sensitive production information. Others may not have the resources to follow EU methodologies.

You’ll need to educate them, provide clear guidance, and set expectations early, especially with key or high-volume suppliers. Larger companies may be able to roll out standardized engagement programs. Smaller ones may need to rely on platforms or external partners to manage outreach and follow-up. Without reliable supplier engagement, you risk missing reporting deadlines or having to use higher-cost default values.

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Verification and Documentation

Starting in 2026, CBAM will require you to submit emissions data that has been verified by an independent third party. That means you’ll need to plan for verification at the supplier level and track documentation for every declared shipment. You’ll also need to store audit trails, verification reports, and evidence of carbon prices paid outside the EU, if applicable.

This requires clear roles and workflows between your team and your suppliers. If you don’t build verification planning into your timeline, you risk missing deadlines or having incomplete submissions. You may also need to validate the credibility of different third-party verifiers working across countries and production types. All of this adds time, cost, and operational pressure, especially in the first reporting cycles.

Timing and Reporting

CBAM adds new reporting tasks on top of your existing ESG or compliance workload. During the transition period, you must file quarterly reports one month after each quarter ends. From 2026, you’ll need to prepare an annual declaration, purchase and surrender certificates, and meet new deadlines in August and October.

These dates won’t always align with your internal reporting or audit cycles, which can lead to process conflicts or delays. You’ll also need systems in place to track emissions data throughout the year, not just at year-end. If you’re operating in multiple EU countries or managing multiple suppliers, the volume of submissions, documents, and follow-ups can grow quickly.

Regulatory Change Management

CBAM rules are still evolving. The Omnibus Simplification Package, introduced in February 2025, proposed to change thresholds, timelines, and verification requirements. Future updates are likely as the EU expands the scope, refines methodologies, or responds to feedback from importers.

You’ll need to monitor regulatory changes and update your internal processes and tools accordingly. If you operate across multiple jurisdictions, you’ll also need to reconcile CBAM requirements with other carbon disclosure rules and frameworks, such as CSRD, the GHG Protocol, or California’s SB 253. Aligning these requirements takes coordination and forward planning.

Managing CBAM Compliance: Building a Scalable Approach

CBAM isn’t a one-time filing task; it’s an ongoing compliance function that affects procurement, sustainability, finance, and trade. To manage it effectively, companies need systems that can support supplier engagement, carbon data collection, emissions calculations, and reporting workflows across multiple geographies and product lines.

The first step is building visibility into your supply chain emissions. That means working with suppliers to access product-level emissions data, ideally based on recognized methodologies. Many organizations are moving away from ad hoc spreadsheets and manual outreach toward structured assessments and centralized data platforms. These tools make it easier to collect and standardize emissions data from hundreds of suppliers, track who’s reporting, and flag data gaps before reporting deadlines.

Verification also becomes more manageable when the data is gathered and stored in a consistent format. Whether you’re preparing for the 2026 reporting cycle or reviewing supplier emissions to inform sourcing decisions, having structured, audit-ready data reduces the risk of errors or missed obligations.

Engaging suppliers is another core part of the process. Companies that approach CBAM reactively by requesting emissions data at the last minute are likely to run into delays, resistance, or poor-quality reporting. Instead, building ongoing engagement programs that support suppliers in understanding and improving their carbon performance is more effective. Some companies are integrating carbon maturity assessments into onboarding or quarterly reviews to track progress over time and help suppliers prepare for future verification requirements.

Integrating CBAM readiness into your broader ESG strategy also creates operational efficiency. The same data that supports CBAM filings can inform sustainability disclosures, track scope 3 emissions, and strengthen investor reporting. Aligning emissions reporting across functions reduces duplication and supports long-term climate targets.

For organizations looking to operationalize CBAM compliance in a scalable way, platforms that combine ESG ratings, carbon performance tracking, and supplier collaboration are becoming essential. EcoVadis supports companies with tools to collect and assess supplier carbon data, engage value chain partners, and strengthen emissions transparency across procurement networks.

To find out how EcoVadis can support your CBAM compliance efforts, talk to our team.