EU CBAM: a guide for importers and third-country producers

If you are based in the EU and import products such as aluminum to package your products; iron or steel screws, bolts or other rivets to use for your activities or integrate in your products; or iron pipes for construction, then you may already be subject to regular declaration obligations under the EU Carbon Border Adjustment Mechanism Regulation (CBAM). Further reporting and financial obligations will apply from 1 January 2026.

Are you outside the EU and exporting iron & steel, aluminum, fertilisers, cement, hydrogen or electricity to the EU? Your EU clients need your emissions data to comply with the EU CBAM under the threat of penalties.

What you need to know

• The CBAM is an environmental measure which levels the playing field between EU and non-EU producers of covered goods on the EU market. It imposes a tax on emissions embedded in imported products.
• The CBAM covers iron & steel, aluminum, fertilisers, cement, hydrogen and electricity.
• The CBAM is currently in its transitional period. The definitive period is set to start on 1 January 2026.
• On 26 February 2025, the European Commission adopted a proposal to simplify the CBAM. This includes a change to the de minimis threshold from EUR 150 per shipment to exempt companies which import less than 50 tonnes of CBAM-covered goods per calendar year.
• While the obligations are only declaratory for the transitional period (declarations of embedded emissions), importers will be required to pay fees from 1 January 2026.
• The costs to be paid by importers will notably be based on embedded emissions, the free allowances under the EU Emissions Trading System (ETS), the EU ETS's values, and the carbon price already paid in third countries.

The CBAM's adoption and purpose

The European Parliament and the Council of the EU adopted Regulation (EU) 2023/956 establishing a carbon border adjustment mechanism (CBAM Regulation) on 10 May 2023 (see our May 2023 update). The CBAM Regulation started to apply on 1 October 2023. 

The CBAM's objectives are sustainability and equity: it mirrors the EU ETS by imposing a price on embedded emissions in goods when they are imported into the EU. The goal is for importers to pay an equivalent amount to the amount paid by EU producers of the same goods under the EU ETS. This aims to reduce the carbon leakage resulting from businesses transferring production to countries with less stringent environmental regulations. As the CBAM accounts for the carbon price paid in non-EU countries, it also encourages countries outside the EU to develop their own carbon trading systems so that they can collect the revenues themselves instead of the EU.  

The CBAM is not favourable to any particular producer or country as it applies equally to all, with little room for exceptions. It puts EU and non-EU producers on equal footing as regards the costs of their production's emissions. Other countries, such as the United Kingdom or Australia, are considering the introduction of a CBAM of their own (see our May 2024 update).

The CBAM is an evolving tool, with several implementing acts due in 2025. On 26 February 2025, the European Commission adopted a proposal to simplify the CBAM (Proposed Amending Regulation). The Proposed Amending Regulation now needs to go through the ordinary legislative procedure, during which it must be adopted by both the European Parliament and the Council. The European Commission has requested that the legislators use a simplified process (so-called "fast-track" process) and refrain from proposing amendments in addition to those already included. However, the legislators are not required to do so and the overall process could take several months.

Which sectors are covered?

The CBAM covers six sectors: iron & steel, aluminum, fertilisers, cement, hydrogen, and electricity. However, the list of sectors is purely indicative: the actual list of covered products is provided as CN codes in the annexes to the CBAM Regulation. This distinction has practical implications: for example, imports of nitric acid, categorised as a "fertiliser" in the annex, will be subject to the CBAM regardless of whether the products are actually imported for use as fertiliser or for use in dyes or pharmaceuticals.

Looking ahead

The European Commission is currently considering whether to extend the scope of the CBAM to include:

• other sectors covered by the EU ETS; and/or
• products from industries that use products covered by the CBAM, in order to prevent companies from avoiding carbon costs by shifting production in these downstream industries to countries outside the EU.

A report on the CBAM's extension is expected in the second half of 2025. Despite calls from industries for an earlier timeframe, Mr. Gerassimos Thomas (Director-General for Taxation and Customs Union at the European Commission - DG Taxud) publicly indicated that he would not expect a legislative initiative until the start of 2026.

Does the CBAM apply to small importers? What if a company only imports a few bolts?

As it currently stands, the de minimis threshold for the CBAM is low, at EUR 150 per shipment. Importing a shipment over that threshold after 1 January 2026 will trigger an obligation to complete a CBAM declaration and pay the appropriate fee.

Looking ahead

The threshold is expected to change before the end of the transitional period.

In response to the numerous complaints received concerning the low de minimis threshold, Mr. Gerassimos Thomas and Mr. Wopke Hoekstra (Commissioner for Climate, Net Zero and Clean Growth) recently indicated that the European Commission was looking at ways to exempt the vast majority of EU companies from the CBAM requirements. 

The European Commission aims to achieve this through the Proposed Amending Regulation, which stipulates that importers of iron and steel, aluminum, cement and fertilisers should be exempt from CBAM obligations if they import no more than 50 tonnes of CBAM-covered goods per calendar year (except for electricity and hydrogen). This new threshold may change over time to ensure that at least 99% of the emissions embedded in imported goods remain covered. For importers below the threshold, the administrative obligations should be limited to self-identify as "occasional CBAM importers" when lodging their customs declaration.

The proposed change from a monetary threshold to a threshold based on net mass aligns with the CBAM's core objective as an environmental measure. 

Which emissions are covered?

The emissions covered under the CBAM depend on the nature of the product. While CO2 emissions are always covered, perfluorocarbons emissions are included for aluminum and nitrous oxides emissions are included for most fertilisers.

Direct emissions are always included, but the inclusion of indirect emissions depends on the goods in question and not all indirect emissions are included. For example, while emissions embedded in the electricity used in the manufacturing process are included, emissions from the extraction, processing and transportation of the raw materials used in the production are not included in the scope of the CBAM for any products.

Looking ahead

Reports are expected around the end of 2025 to assess the possibility of extending the scope of the CBAM to cover more indirect emissions. This could concern goods for which only direct emissions are included, embedded emissions from the transport of goods, additional input materials, etc.

When will the CBAM apply?

The CBAM is already in force, with declarations due every quarter. However, it is currently in a transitional period, which is intended as a learning phase for the European Commission and companies covered by the CBAM. During the transitional period, only the reporting obligations apply. Registered importers of CBAM-covered products established in EU Member States (CBAM Declarants) will only need to pay for CBAM certificates in the definitive period, currently set to start in January 2026.

Looking ahead

There have been calls to delay the start of the definitive period for some time, notably from countries outside the EU. The European People's Party (which represents 187 out of 720 seats in the European Parliament) has also recently called for a two-year delay on the implementation of the CBAM. However, the European Commission has so far indicated that it plans to maintain the original timeframe, while adapting the mechanism to make it more efficient and less burdensome.

What do companies have to do to comply?

The only companies with legal obligations under the CBAM are the importers of goods into the EU, who may become CBAM Declarants. To become a CBAM Declarant, entities have to apply via the CBAM registry, which may require extensive documentation and time. 

During the transitional period

CBAM Declarants have to collect emissions data from their suppliers outside the EU and report these emissions on a quarterly basis. 

During the definitive period 

By 31 May each year, CBAM Declarants will have to report emissions and surrender CBAM certificates corresponding to the emissions embedded in CBAM goods they imported in the previous year. 

Although the CBAM Declarant is the one ultimately making the declaration and paying the appropriate fee, the data has to be obtained from its suppliers outside the EU. Cooperation is therefore key for compliance. The total embedded emissions declared must be verified by a "verifier" accredited by the national accreditation bodies. The verifier will need to visit the third country producer's installation and prepare a report.

A platform for non-EU installation operators has been online since January 2025. This platform allows third country operators to share data, which can be confidential, directly with the European Commission. The data includes information on the installations and emissions data. 

Looking ahead

The Proposed Amending Regulation would change the deadline for submitting CBAM declarations and surrendering CBAM certificates from 31 May to 31 August each year.

Several implementing acts are expected, which will provide more details on how to comply with the CBAM, including:

• the conditions and procedures for the authorisation of CBAM declarants;
• procedures, notably in front of competent national authorities (deadlines for processing etc.); and
• the conditions for the sale and purchase of CBAM certificates.

How much will it cost?

The CBAM Declarants will "pay" by releasing previously purchased CBAM certificates. These CBAM certificates can only be purchased through a common central platform established in the relevant Member State. Only one third of the certificates purchased on the platform the previous year can be repurchased by the platform each year: the rest will be cancelled without compensation.

At the end of each quarter, CBAM Declarants must have a number of CBAM certificates on their accounts equivalent to at least 80% of the embedded emissions of goods imported since the beginning of the year.

The European Commission has provided the basic calculation formula of CBAM fees as follows:

The calculation of embedded emissions is particularly complex.  It does not only account for the embedded emissions: it also accounts for eligible carbon prices already paid for the embedded emissions outside the EU. The calculation of embedded emissions includes several elements, such as the emissions embedded in precursors for complex goods.

One recurring question relates to the free allowances obtained by EU producers under the current EU ETS system. These are accounted for in the calculation: as free allowances are phased out, the CBAM's costs will increase to reflect this phase-out. This will be done through the CBAM factor in the formula above. The CBAM mirrors the EU ETS, thus ensuring that EU and non-EU producers are operating on an equal playing field.

If CBAM Declarants are unable to obtain the required emissions' data from suppliers, the mechanism will allow them to rely on default values. These default values will be set in a way that is sufficiently prohibitive to encourage real emissions accounting. 

Looking ahead

The Proposed Amending Regulation proposes deferring the obligation to purchase CBAM certificates for 2026. If adopted, the platform will only sell CBAM certificates starting in February 2027. This delay would affect the 2026 quarterly purchase obligation: importers would still need to purchase certificates for the emissions embedded in 2026 imports in 2027. 

The Proposed Amending Regulation proposes changing the ratio of CBAM certificates required at the end of each quarter to correspond to 50% of the embedded emissions in goods imported since the beginning of the year, taking into account the adjustment for free allocation. The number of certificates that can be repurchased by the platform each year would also change to the amount necessary to comply with the quarterly purchase obligation.

Several implementing acts are expected to clarify the methodology for calculating the number of certificates to be released under the CBAM, which should provide legal certainty before the start of the definitive period. This includes implementing acts on:

• how to account for the carbon price paid in third countries; and
• default values for the definitive period, which will be set by country, or even region.

The Proposed Amending Regulation also includes information on accounting for the carbon price paid in third countries. It notably establishes the possibility of using default carbon prices, determined by the European Commission for each country.

What changes are expected? How can businesses prepare?

The European Commission is currently reviewing the CBAM and more changes are expected by the end of the transitional period and immediately thereafter. The European Commission will adopt several implementing acts and further amendments may be made to the CBAM. This is primarily a consequence of the ongoing strategy to minimise the administrative burden imposed by EU regulations.

On 26 February 2025, the European Commission published an omnibus package which would simplify sustainability reporting, along with the Proposed Amending Regulation which specifically targets the CBAM. The adoption of the Proposed Amending Regulation by the European Parliament and the Council would lead to substantial changes to the current CBAM. In addition to the changes already mentioned, other important modifications include updates regarding anti-circumvention, default values and system boundaries. 

The CBAM is already a complex mechanism and the numerous upcoming changes make it challenging for companies to understand their compliance requirements. However, recognising the requirements and taking action early are both essential to ensure compliance and to avoid penalties. We recommend importers and non-EU producers of CBAM goods to:

• determine whether their business is within the scope: Is my company subject to the CBAM, whether as an EU importer, or a third country operator selling to EU clients?
• assess potential exposure: How exposed is my company to the CBAM? What are my obligations? Are my clients going to ask for emissions data? Does my company have to make its own CBAM declarations? Do I have the in-house capacity to assess exposure or do I need outside legal counsel or consultants to assist me?
• engage with suppliers and clients: Are proper data collection systems in place/upcoming? Is emissions data collected and readily available, including further up in the supply chain if necessary? Is the data collected accurate?
• stay up-to-date on regulatory developments: The CBAM is currently an evolving tool. What are the upcoming changes? Do they affect my company's exposure? Obligations (price to be paid, timing…)? When are the CBAM's reviews due and may they change my company's obligations?
• communicate with the European Commission: The European Commission encourages all stakeholders to participate in consultations, but also to reach out informally. This is particularly recommended now as the CBAM is still somewhat in flux: the first three quarters of 2025 will be decisive in the design of the final tool.