The European Union has introduced a new CO2 border adjustment scheme, known as the Carbon Border Adjustment Mechanism (CBAM), which aims to control emissions associated with the import of carbon-intensive products. Although it is due to come into force in January 2026, a transitional period will begin on 1 October, affecting products with the highest risk of carbon leakage. Below we break down the key aspects of this regulation and explain how it will affect importers of these goods in practice.
It is a tool to counteract carbon leakage, which occurs when companies with high greenhouse gas emissions move their production to areas outside the EU with less stringent climate regulations. By implementing it, the EU aims to reduce global emissions while ensuring a level playing field for companies, whether they produce inside or outside the continent.
The CBAM will assess the emissions released in the production of goods and will equalise the carbon price between European products and imports for a range of products. This will ensure that EU climate targets are not circumvented by relocating production to countries with less ambitious policies, and that EU products are not replaced by more carbon-intensive imports.
The CBAM applies to carbon emissions from certain products imported into the EU where there is a high risk of carbon leakage. For the time being, these include cement, iron and steel, aluminium, fertilisers, hydrogen and electricity, as well as some precursors and co-products of these sectors.
However, the EU has already opened the possibility of extending the scope of the Regulation to other products and companies in the future.
The timetable for the implementation of the carbon capture and storage mechanism is divided into two periods:
The Implementing Regulation, published on 17 August 2023, provides the basis for the transitional period during which importers will have to report at the end of each quarter the emissions incorporated in their goods subject to CBAM, but without paying any financial adjustment.
From the entry into force of the final CBAM scheme in 2026, EU importers will purchase CBAM certificates corresponding to the carbon price that would have been paid if the goods had been produced under EU carbon pricing rules.
The price of the certificates will be calculated on the basis of the average weekly auction price of the EU ETS, expressed in euros/tonne of CO2 emitted.
It should be noted that if a non-EU producer has already paid a carbon price in a third country for the emissions integrated for the production of the imported goods, the corresponding cost can be fully deducted from the CBAM obligation.
Want more information? Access all the documentation produced by the European Commission on the implementation of the Carbon Credit Adjustment Mechanism (CBAM).
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