The CBAM declaration is filed by the authorized CBAM declarant — the EU importer of record. But the embedded emissions data on that declaration comes from the producing installation. For Canadian exporters, this means understanding the compliance machinery, the deadlines, and the data obligations that flow upstream.
The Carbon Border Adjustment Mechanism (CBAM) is the European Union’s policy to put a carbon price on goods produced outside the EU that enter the European market. Its primary objective is to prevent carbon leakage — the risk that EU-based producers move carbon-intensive production to countries with weaker climate policies, or that EU products are replaced by more carbon-intensive imports.
CBAM mirrors the EU’s internal carbon pricing system, the Emissions Trading System (ETS). It creates a parallel obligation for importers so that goods entering the EU face the same carbon cost as goods produced within it. As free allowances under the ETS are phased out for EU industries, CBAM is progressively phased in for imported goods. The CBAM factor — the schedule for phasing out free allowances — starts at 97.5% in 2026 and reaches 0% by 2034, at which point full CBAM liability applies to all covered imports.
| Feature | EU Emissions Trading System (ETS) | Carbon Border Adjustment Mechanism (CBAM) |
|---|---|---|
| Primary Function | A cap-and-trade system setting a cap on emissions from EU power and industrial installations. | A system to apply a carbon price to certain imported goods, mirroring the ETS price. |
| Key Mechanism | EU producers must buy allowances for their emissions, with some sectors receiving free allowances. | Importers buy CBAM certificates corresponding to the carbon price of embedded emissions in imported goods. |
| Relationship | CBAM is introduced progressively as free ETS allowances are phased out for relevant sectors. The price of CBAM certificates mirrors the EU ETS allowance price. | |
CBAM is a central component of the European Green Deal, which targets a 55% net reduction in greenhouse gas emissions by 2030 and full climate neutrality by 2050.
| Date | Milestone |
|---|---|
| 10 May 2023 | CBAM Regulation (EU) 2023/956 signed into law |
| 1 Oct 2023 – 31 Dec 2025 | Transitional phase: importers reported embedded emissions without financial obligations |
| 1 Jan 2026 | Definitive regime entered into force; CBAM Registry integrated with National Customs Import Systems across all EU Member States |
| 2026 – 2034 | CBAM certificates progressively phased in as free ETS allowances are phased out (CBAM factor: 97.5% in 2026 → 0% by 2034) |
CBAM applies to imports in six carbon-intensive sectors at the highest risk of carbon leakage: cement, iron and steel, aluminium, fertilisers, hydrogen, and electricity. Products are identified by their CN codes (Combined Nomenclature). The mechanism applies to all non-EU countries, except those participating in the EU ETS or with a linked system (EEA members and Switzerland). Goods moved or used in the context of military activities (declared via NATO or EU Form 302) are exempt.
In the definitive regime, only authorized CBAM declarants are permitted to import covered goods into the EU. The authorized declarant is the EU importer of record, or for non-EU businesses selling delivered-duty-paid, an indirect customs representative acting on their behalf. The authorized CBAM declarant registers in the CBAM Registry, files the annual CBAM declaration, purchases certificates at the published price, and surrenders them against the embedded emissions of everything imported.
Applicants must hold an EORI number, have a clean compliance record in customs and taxation, and demonstrate financial and operational capacity. Importers established for less than two years must provide a bank guarantee covering the estimated number of certificates they will need to surrender. Importers above the 50-tonne annual threshold (and all importers of hydrogen, regardless of mass) had to hold authorization or have an application pending by 31 March 2026; without it, customs refuses the goods.
Canadian producers have no direct EU filing obligation. However, the authorized declarant’s liability is calculated entirely from the producing installation’s data. An exporter that treats CBAM as the importer’s problem will find that the importer has priced that position into the contract — or sourced from a supplier that provides the data.
How the obligation flows
The authorized CBAM declarant files and surrenders certificates. The producing installation provides the emissions data. Every tonne of CO₂e the producer fails to substantiate becomes a marked-up default on the declarant’s submission — and a cost the declarant will pass upstream.
CBAM requires importers to purchase certificates corresponding to the carbon price that would have been paid if the goods were produced in the EU. The price of a CBAM certificate is tied to the weekly average auction price of EU ETS allowances. During 2026, the price is calculated as a quarterly average of ETS prices (Q1 2026: €75.36).
Embedded emissions include direct emissions from production and, for cement and fertilisers, indirect emissions from electricity consumed during production. Importers can claim a reduction in certificates if a carbon price was effectively paid in the country of origin. Any rebates or compensation received in that third country must be deducted from the price paid to determine the actual reduction.
The EU introduced a single mass-based threshold of 50 tonnes of net mass per calendar year to reduce administrative burden on smaller importers. This threshold applies cumulatively to all goods in the iron and steel, aluminium, fertilisers, and cement sectors. It does not apply to electricity or hydrogen. If an importer exceeds 50 tonnes in a year, it becomes liable for all emissions embedded in all goods imported during that entire year — the threshold is cliff-edged, not marginal.
The threshold belongs to the importer, summed across all its covered imports from all origins. A Canadian producer shipping 30 tonnes does not guarantee the EU customer’s exemption if that customer also imports steel from other countries. The Commission estimates the threshold exempts approximately 90 percent of importers while keeping roughly 99 percent of embedded emissions in scope.
Four components connect a Canadian producing installation to its EU customer’s CBAM declaration:
| Component | What it is | Who does it |
|---|---|---|
| Declarant registration | The authorized CBAM declarant registers in the EU’s CBAM Registry and references the producing installation’s data in its declaration | Authorized CBAM declarant (EU importer) |
| Embedded-emissions calculation | Installation-level direct (and for cement and fertilisers, indirect) emissions per tonne of each CN-coded product, calculated to EU methodology | Canadian producer, following the CBAM implementing rules |
| Verification | Accredited verifier checks the emissions data — on-site verification is the norm in the first year of the definitive regime | Accredited verifier engaged by the producer |
| Communication | Standardised template carrying the verified figures to every EU customer for their declarations | Producer to each declarant |
The emissions calculation follows the EU’s implementing rules adopted in late 2025, which fix system boundaries, production-route distinctions, and precursor accounting. A steel product carries the emissions of the route that produced it, an aluminium extrusion carries its billet’s history, and externally purchased precursors bring their own embedded numbers. An existing corporate GHG inventory built for CDP or investor reporting is a starting point, but CBAM requires installation-level, product-specific, CN-code-mapped figures with a verification trail.
For every consignment, the declarant either uses actual values — verified installation-level emissions data — or falls back on default values published by the Commission. Defaults are conservative: where reliable country data is unavailable, they are built from the highest-emitting producer countries and carry a mark-up that reaches 30 percent for most products from 2028.
For Canadian industry this is a direct commercial question. Canadian aluminium at approximately 2 tCO₂ per tonne, verified and declared as actual, carries a proportionately low CBAM certificate cost. The same metal declared at a marked-up default eliminates the competitive advantage of Canada’s low-carbon grid. The same applies to steel, where the EAF fleet’s verified intensity is significantly below global averages, and ammonia, where Canadian production at approximately 1.3 tCO₂e per tonne compares against an EU default near 1.99.
Verified data reduces CBAM cost
Producers with verified installation-level emissions data enable their EU customers to declare actual embedded emissions rather than penalised defaults. The difference translates directly into the number of CBAM certificates the declarant must purchase.
The dates that matter to a Canadian supply chain, in order:
| Date | What happens | What it means upstream |
|---|---|---|
| 1 Jan 2026 | Definitive regime live; declarant-only imports | EU customers without authorization cannot legally import covered goods |
| 31 Mar 2026 | Authorization application deadline passed | Customers importing on pending applications need decisions — check status |
| Through 2026 | Liability accrues on every covered tonne; quarterly certificate prices published (Q1: €75.36) | 2026 installation data must be collected now — it is declared in 2027 |
| 1 Feb 2027 | Certificate sales open on the central platform | Customers start carrying CBAM cash cost; 50% quarterly holding rule applies |
| 30 Sep 2027 | First annual declaration and surrender for 2026 imports | The producer’s 2026 verified data is on the declaration; €100/t penalty for missing certificates |
| 1 Jan 2028 | Proposed downstream extension; default mark-ups reach +30% | Indirect exposure via US supply chains begins if adopted as proposed |
The trap in this calendar is the gap between accrual and payment. Nothing is paid in 2026, so nothing feels urgent — but the emissions being accrued all year are the ones declared in September 2027, and a verifier cannot reconstruct a 2026 monitoring year that was never instrumented. The data window is open now and closes silently on 31 December.
Climate Decode prepares Canadian installations for CBAM compliance — emissions methodology, verification, and the customer data package — before the monitoring year closes.
The launch of the definitive regime on 1 January 2026 demonstrated significant market engagement: over 12,000 operators applied for authorization by 7 January 2026, with over 1.6 million tonnes of goods declared in the first six days. Iron and steel accounted for 98 percent of early declared volumes.
Failing to surrender the correct number of certificates results in a penalty identical to the EU ETS excess emissions penalty for each missing certificate. Importers exceeding the 50-tonne threshold without authorization are subject to these penalties for their entire annual import volume. The penalty structure creates a direct financial incentive for both declarants and producers to ensure complete, verified emissions data.
The compliance build for a Canadian exporter follows a defined sequence: map products to CN codes, instrument the monitoring year to EU methodology, engage an accredited verifier, standardise the customer-facing data package, and structure the carbon term in contracts. The sequence starts with a monitoring year that is already running.
Paper 3 in this series covers how Canadian producers are turning this machinery into market position; Paper 4 covers the rulemaking that decides how much of the carbon price already paid in Canada comes off the EU bill — a deduction that also runs on evidence only the producer can assemble.
TerraNova runs the full stack: installation-level inventory to CBAM methodology, verifier-ready documentation, the customer data package, and the abatement plan that shrinks the number everyone is now contracting over.
Climate Decode builds the CBAM compliance machinery for Canadian exporters — emissions methodology, verification, and the customer data package — before the first surrender deadline.
Notes and sources for the figures in this paper.