The European Union’s Carbon Border Adjustment Mechanism (CBAM) is not exactly new legislation. It was first adopted by the EU in principle in 2021 and began its first transitional phase on 1 October, 2023. With stricter EU reporting and financial obligations for importers coming into force over the next two years and UK CBAM set to be introduced in 2027, many organisations are wondering about the scope of the legislation and what effects it will have. Here is a brief overview.
What is CBAM?
According to the European Commission Taxation and Customs Union:
Like the planned UK CBAM, it aims to prevent “carbon leakage” occurring where companies buy carbon-intensive products more cheaply from countries with less stringent climate policies.
What sectors are impacted?
Both EU and planned UK CBAM legislation applies to imports of the following carbon-intensive goods:
- cement
- iron and steel
- aluminium
- fertilisers
- hydrogen
EU CBAM also applies to imports of electricity. The scope of UK CBAM does not include electricity but adds ceramics and glass to the above list of carbon-intensive goods.
Who needs to comply with CBAM?
The details of UK CBAM compliance are still in development, but compliance with the EU CBAM has been a requirement since the start of the transitional phase in October 2023. For importers into the EU, this currently requires them to submit quarterly reports detailing the quantity, type, and embedded emissions of EU CBAM goods imported. From January 2025 CBAM reporting requirements and methodology become stricter with fines introduced for non-compliance.
As of January 2026 the full CBAM certification regime will commence, requiring EU importers to submit an annual declaration detailing CBAM product quantities, their total embedded emissions, and third-party verification reports for these emissions. Importers will also have financial obligations: they will need to purchase CBAM certificates, priced based on the EU Emissions Trading System (ETS), and surrender certificates annually based on declared imports.
Non-EU exporters into the EU, including exporters in the UK, need to provide necessary emissions data to EU customers to help them comply with CBAM.
Will there be cost implications?
The intent of CBAM is to level the global playing field between producers of carbon-intensive goods. This will disincentivise cheap supplies from territories that do not price carbon or otherwise account for negative externalities that contribute to the global problem of climate change. This should adjust costs in line with domestic EU and UK production of carbon-intensive goods, at least initially.
CBAM will likely introduce new dynamics in international trade relations, but over time the objective of CBAM is to promote and stimulate sustainable industrial practices worldwide within World Trade Organisation (WTO) rules.
Where else will CBAM regulations have an effect?
The CBAM regulations will impact differently in different countries and sectors, as this data visualisation from S&P Global illustrates. While support for the least developed countries is available from the EU, the Centre for Global Development warns of consequences to economies where carbon pricing has yet to mature.
A number of countries and territories are exploring CBAM regimes similar to the EU’s. Canada has been exploring Border Carbon Adjustments (BCAs) for a number of years as part of its legislative commitment to net zero, and CBAM proposals in the US are currently gaining political momentum and popular support.
I’m not an importer or an exporter of CBAM-regulated goods. What do I need to do?
Our built environment, agricultural models and many other sectors of the economy depend heavily on CBAM-regulated goods to thrive. Even if your EU or UK organisation has no direct CBAM compliance obligations, it’s highly likely that there will be impacts within your supply chain. Understanding your supply chain and proactively adopting responsible procurement practices can help ensure you are prepared for CBAM impacts and for other sustainability compliance requirements on the horizon.
Need help with quantifying emissions, ISO 14064-3 third-party verification, responsible procurement strategies and practical actions, or aligning your business with sustainability frameworks and regulations? Get in touch!