EU CBAM: Key updates and how to avoid costly pitfalls

CBAM's Costly New Phase

The EU Carbon Border Adjustment Mechanism (CBAM) imposes a levy on the carbon emissions embedded in certain imported goods, levelling the playing field with EU producers who pay under the Emissions Trading System (ETS). After a transitional phase from October 2023 to December 2025 focused solely on emissions reporting, the mechanism went live in its definitive form on January 1, 2026.

Importers of covered goods—primarily iron and steel, aluminium, cement, fertilisers, electricity, and hydrogen—now incur financial obligations for emissions in imports from that date. No certificates need purchasing in 2026; the first sales open in February 2027, with declarations and surrenders due by September 30, 2027, for 2026 imports. Certificate prices tie to quarterly or weekly ETS averages, potentially significant given ETS prices trending higher.

The shift aligns with phasing out free ETS allowances for EU industry between 2026 and 2034, preventing carbon leakage while generating substantial revenues—projections estimate €1-1.4 trillion from carbon pricing over 2025-2035. Recent changes via the October 2025 Omnibus Regulation replaced a low-value exemption with a 50-tonne mass-based de minimis threshold, easing burdens on small importers, and allowed grace-period imports for applications filed by March 31, 2026.

Implementation has proven bumpy: over 15,000 authorisation applications yielded approval rates dipping to around 27%, risking customs delays. The European Commission issued nine implementing acts in late 2025 clarifying emissions rules and anti-circumvention measures. A December 2025 proposal seeks to extend CBAM from 2028 to roughly 180 downstream steel- and aluminium-intensive products like machinery, appliances, and vehicle components (excluding passenger cars), broadening impacts across supply chains.

Global pushback persists, with major exporters viewing it as protectionist, though some countries have responded by expanding their own carbon pricing. Within Europe, debates continue over balancing climate goals against industrial competitiveness, especially as ETS prices climb and political voices question revisions if they harm jobs.