The EU's flagship policy to prevent carbon leakage by applying carbon costs to imports in 6 carbon-intensive sectors. Mirrors the EU ETS allowance price. Transitional phase completed December 2025; definitive regime began January 1, 2026.
CBAM mirrors EU ETS by requiring importers to purchase certificates corresponding to the carbon price. The CBAM certificate price equals the weekly average EU ETS auction price (or quarterly average in 2026). Embedded emissions include direct emissions plus indirect for cement and fertilisers.
Only "Authorized CBAM Declarants" can import covered goods — importers must hold an EORI number, maintain a clean compliance record, and provide financial guarantees.
Deductions are allowed for carbon prices effectively paid in the country of origin — but only if documented. A 50-tonne de minimis threshold applies to iron & steel, aluminium, fertilisers, and cement (NOT electricity or hydrogen).
The CBAM Factor phases in from 97.5% in 2026 down to 0% by 2034, as free EU ETS allowances phase out. Full CBAM liability begins in 2034, creating a critical multi-year compliance arc for exporters worldwide.
CBAM applies to imports of goods in 6 carbon-intensive sectors. Each sector includes both direct and indirect emissions where applicable. The covered sectors represent approximately 80% of EU ETS emissions and are critical to global trade flows.
CBAM is designed to level the playing field between EU producers facing ETS costs and importers from jurisdictions without equivalent carbon pricing. The mechanism creates real economic exposure for global exporters while allowing for deductions where carbon prices have been paid.
97.5% in 2026 decreasing to 0% by 2034, as free ETS allowances phase out. Financial exposure grows predictably, forcing exporters to plan long-term cost mitigation.
CBAM certificate price equals the weekly average EU ETS auction price (quarterly average in 2026). Direct linkage to EU carbon market price signals.
Importers need EORI number, clean compliance record, and financial guarantees. Ensures only professional, traceable traders participate.
Direct emissions + indirect (for cement, fertilisers). Actual values preferred over default. Complex methodology requires rigorous documentation.
Importers can deduct carbon prices paid in country of origin. Critical for countries with own carbon pricing (India CCTS, South Korea ETS, etc.).
Applies to iron/steel, aluminium, fertilisers, cement (NOT electricity, hydrogen). Reduces compliance burden for very small consignments.
TerraNova delivers finance-grade CBAM intelligence for Supply Chain Officers, CFOs, and Trade Compliance teams — from declarant registration and embedded emissions calculation through to carbon price strategy and multi-jurisdiction compliance.
Track embedded emissions across imported products (cement, iron/steel, aluminium, fertilisers, hydrogen, electricity). Monitor CN code-level reporting and Authorized Declarant status.
Cross-map embedded emissions with EU ETS allowance prices, CBAM certificate costs, and carbon prices paid in countries of origin. Identify highest-exposure product lines.
Best-fit supplier decarbonisation strategies to reduce embedded emissions. MACC sheets adjusted for CBAM Factor schedule (97.5% in 2026 → 0% by 2034) and increasing exposure.
Track carbon price deductions for prices paid in origin countries. Manage documentation for third-country carbon cost claims.
Multi-year exposure modelling as CBAM Factor tightens and free ETS allowances phase out. Model certificate procurement costs under different import volume scenarios.
Track EU regulatory updates, CBAM Factor schedule, ETS allowance pricing, sector-specific implementation, and cross-reference with origin-country carbon markets.
CBAM creates real economic exposure for exporters in steel, aluminium, cement, fertilisers, and hydrogen. Companies in India, Canada, and other jurisdictions with domestic carbon pricing may claim deductions — but only if carbon prices are effectively documented. Exporters who fail to plan face rising costs as the CBAM Factor phases in, with 100% liability by 2034.
Deep-dive analysis and strategic guidance on the EU Carbon Border Adjustment Mechanism from our trade and compliance team.
A comprehensive guide to CBAM mechanics, compliance timeline, and real-world impact on global supply chains.
Annual CBAM Factor phase-in from 97.5% (2026) to 0% (2034). Financial modeling and cost projection.
How India's Carbon Credit Trading Scheme creates deduction opportunities under EU CBAM for Indian exporters.
Answers to the most common questions about the EU Carbon Border Adjustment Mechanism, reporting requirements, and compliance obligations.
CBAM is the EU's landmark regulation that puts a carbon price on imports of certain goods into the EU. It ensures that imported products face the same carbon costs as EU-produced goods, preventing "carbon leakage" where production shifts to countries with weaker climate policies. It entered its transitional reporting phase in October 2023 and moves to the definitive phase in January 2026.
CBAM covers 6 carbon-intensive sectors: iron & steel, aluminium, cement, fertilisers, electricity, and hydrogen. These sectors were selected because they have the highest risk of carbon leakage. The scope may expand to additional sectors over time to eventually cover all EU ETS sectors.
EU importers of CBAM-covered goods must register as "authorised CBAM declarants" with their national authority. They must report the embedded emissions in their imports and, from 2026, purchase CBAM certificates to cover those emissions. Non-EU producers exporting to the EU are also impacted as they must provide emissions data to their EU buyers.
CBAM certificate prices mirror the weekly average EU ETS allowance auction price. This ensures imported goods face the same carbon cost as EU-produced goods. If the exporting country already has a carbon price, importers can claim a reduction to avoid double-counting. Free EU ETS allocations will phase out gradually as CBAM phases in fully by 2034.
From January 2026, the financial obligations begin. Authorised declarants must purchase and surrender CBAM certificates corresponding to the embedded emissions in their imports. The transitional phase (2023-2025) only required quarterly emissions reporting. The definitive phase makes it a financial compliance obligation tied to the EU ETS carbon price.
Non-EU producers must provide accurate embedded emissions data to their EU buyers. Countries like India, Turkey, and China — major exporters of CBAM-covered goods — are particularly affected. Many are accelerating their own domestic carbon pricing to allow their exporters to claim CBAM deductions for carbon costs already paid at home.
Climate Decode's TerraNova platform helps both EU importers and non-EU exporters navigate CBAM. For importers: embedded emissions calculation, CBAM certificate management, and compliance reporting. For exporters: emissions data preparation, carbon price exposure analysis, and strategic decarbonisation planning to reduce CBAM liabilities.
See how TerraNova delivers finance-grade CBAM intelligence — from embedded emissions calculation and certificate strategy to multi-jurisdiction compliance and export competitiveness optimization.