CBAM definitive phase

The Carbon Border Adjustment Mechanism (CBAM) is an EU instrument established by Regulation (EU) 2023/956, adopted in May 2023 as part of the "Fit for 55" package. It prices the carbon embedded in selected imports to mirror the cost EU producers pay under the EU Emissions Trading System (EU ETS), with the goal of preventing carbon leakage as ETS free allowances are phased out.

CBAM operates in two stages. The transitional phase runs from 1 October 2023 to 31 December 2025 and imposes only quarterly reporting obligations on importers — no financial payment. The definitive phase begins on 1 January 2026. From that date, importers (or their authorised CBAM declarants) must:

• Be registered as an authorised CBAM declarant to import covered goods.
• Submit an annual CBAM declaration by 31 May each year covering the previous calendar year's imports.
• Purchase and surrender CBAM certificates equal to the embedded direct (and, where applicable, indirect) emissions of imported goods, priced on the weekly average EU ETS auction price.
• Deduct any carbon price already paid in the country of origin to avoid double pricing.

The sectors initially covered are cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen, plus certain downstream products such as screws and bolts. The European Commission is empowered to extend the scope.

Free ETS allowances for CBAM sectors are scheduled to be phased out gradually between 2026 and 2034, with CBAM obligations rising in parallel. Verification of embedded emissions must be carried out by accredited verifiers.

In February 2025, the Commission proposed an "Omnibus" simplification package that would exempt small importers (under roughly 50 tonnes per year) and streamline calculation rules, while keeping the 2026 start date for the definitive phase intact. The mechanism has drawn objections at the WTO from trading partners including China, India, and Brazil, who argue it functions as a unilateral trade barrier.