The CBAM transition phase is the reporting-only stage of the European Union's Carbon Border Adjustment Mechanism, established under Regulation (EU) 2023/956. It began on 1 October 2023 and runs through 31 December 2025, with the definitive regime — including financial obligations — scheduled to start on 1 January 2026.
During the transition phase, EU importers of covered goods must submit quarterly CBAM reports to the European Commission detailing the embedded direct and (for some sectors) indirect greenhouse gas emissions of imported products, as well as any carbon price effectively paid in the country of production. No CBAM certificates need to be purchased and no financial adjustment is owed. The first reports were due by 31 January 2024.
The scope initially covers six carbon-intensive sectors considered at high risk of carbon leakage: cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen. Downstream products such as screws and bolts of iron or steel are also included.
The transition phase serves three functions:
- Data collection to refine the methodology before financial liability begins.
- Adjustment time for importers and non-EU producers to build emissions monitoring and verification systems.
- Diplomatic engagement with trading partners, several of which — including China, India, Brazil, South Africa, and Turkey — have criticised CBAM as a unilateral trade measure potentially inconsistent with WTO principles.
Initially importers could use default values published by the Commission for estimating embedded emissions, but from the third quarter of 2024 the use of defaults was restricted and actual production data became the norm, with exceptions phasing out. The Commission is also using the transition period to review CBAM's scope, including possible extension to other ETS sectors and to indirect emissions, with a report due before the definitive regime takes effect.
Example
In January 2024, EU importers of Indian steel and Turkish cement filed their first quarterly CBAM reports under the transition phase, triggering protests from New Delhi at the WTO Committee on Trade and Environment.