CBAM – The EU Carbon Border Adjustment Mechanism from 2026: What Companies Need to Know

The European Union is pursuing ambitious climate goals as part of its Green Deal. A key instrument in this effort is the Carbon Border Adjustment Mechanism (CBAM), also known as the CO₂ border levy. From January 1, 2026, the definitive phase will begin. At that point, financial and organizational obligations will apply that go far beyond the current reporting-only requirements.

This article explains the background of CBAM, which industries are affected, what challenges companies face, and how businesses can start preparing today.

Key Takeaways

• CBAM complements the EU Emissions Trading System (EU ETS) and aims to prevent “carbon leakage.”
• Applies to imports of certain carbon-intensive goods: cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen (with more sectors under discussion).
• From 2026, importers must purchase CBAM certificates reflecting the embedded emissions of imported products.
• Since 2023, there has been a transition phase with mandatory emissions reporting only.
• Supply chain transparency and data accuracy are critical to avoid excessive costs and ensure compliance.

Why the EU Introduced CBAM

The EU wants to avoid a scenario where strict climate policies lead to carbon leakage—the relocation of carbon-intensive production outside the EU to regions with lower environmental standards.

CBAM imposes a carbon price on certain goods produced outside the EU. This ensures a level playing field between EU producers subject to the EU ETS and foreign producers exporting to the EU.

Which Products Are Covered

Currently, CBAM applies to the following sectors:

• Cement
• Iron and steel
• Aluminum
• Fertilizers
• Electricity
• Hydrogen

The EU is considering extending CBAM to other product groups such as organic chemicals or plastics in the future.

Transition Phase and Full Implementation in 2026

• Since October 2023: Importers must report quarterly emissions data of covered goods but no payments are required yet.
• From January 1, 2026: The permanent CBAM regime begins. Importers will need to purchase CBAM certificates at prices linked to the EU ETS.
• Gradual phase-out of free allowances: EU manufacturers will receive fewer free EU ETS allowances over time, aligning domestic and imported goods under the same carbon price rules.

Challenges for Businesses

1. Data quality and supply chain transparency
   Many companies lack verified emissions data from non-EU suppliers. Without data, default values will apply—usually more expensive.
2. Administrative burden
   CBAM requires a new system for reporting, certificate purchasing, and compliance checks. Companies must register with authorities, hold CBAM accounts, and undergo annual reviews.
3. Cost risks
   Depending on the emissions intensity of imports, CBAM can have a significant financial impact on margins.
4. Strategic sourcing
   Companies may need to reassess supply chains, potentially shifting from non-EU suppliers to EU-based ones to reduce exposure.

Opportunities Through CBAM

Despite the challenges, CBAM can also create value:

• Fair competition: EU producers will no longer be disadvantaged against non-EU suppliers with weaker carbon rules.
• Innovation driver: Non-EU producers exporting to the EU will have incentives to decarbonize production.
• Reputation benefits: Companies that build transparent, low-carbon supply chains early will stand out as leaders.

Conclusion

CBAM is a milestone in EU climate policy. From 2026, it will become both a compliance and a cost issue for many companies. Businesses that start now—by gathering emissions data, engaging suppliers, and adjusting procurement strategies—will have a clear advantage.

CBAM should not only be seen as a regulatory burden but also as an opportunity: companies that embrace transparency and sustainability will strengthen both compliance and competitiveness.

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CBAM FAQ

What does CBAM mean for importers?
From 2026, importers must declare the carbon emissions embedded in imported goods and purchase CBAM certificates accordingly.

Which countries are covered?
All countries exporting to the EU, except those with equivalent carbon pricing systems (e.g., Norway, Switzerland).

What data must be reported?
Direct emissions from production, production volumes, process details, and in some cases indirect emissions (e.g., electricity use).

How high will the costs be?
Costs depend on the EU ETS carbon price. If no verified data is provided, default emission factors will apply, often at higher levels.

Are there penalties for non-compliance?
Yes. Incorrect reporting or failure to surrender certificates can lead to significant fines and import restrictions.

How can companies prepare?

• Engage suppliers early and require emissions data.
• Build internal processes and IT systems for reporting and certificate management.
• Adapt procurement and pricing strategies to reflect CBAM costs.