Understanding CBAM and its implications

Russell Smyth unpacks the EU’s Carbon Border Adjustment Mechanism, revealing why carbon costs, trade exposure and supply chain blind spots could hit businesses harder than expected

As part of the Fit for 55 package, the European Union (EU) is revamping its Emissions Trading System (ETS)—expanding its scope, tightening the annual cap and phasing out free allowances.

While these measures are aimed at accelerating decarbonisation, they will also increase carbon prices and raise the risk of production or purchasing shifting to countries and territories with weaker climate rules (carbon leakage).

To address this, the EU has introduced the Carbon Border Adjustment Mechanism (CBAM).

Effective since October 2023, CBAM imposes a carbon charge on certain imports, matching the cost facing EU producers under the ETS and replacing free allowances for high-risk sectors.

CBAM is designed to level the playing field, encourage global decarbonisation and protect EU industry from unfair competition.

The regulation entered into force on 17 May 2023, with reporting obligations commencing on 1 October 2023.

Officially adopted in October 2025, CBAM simplifications include the introduction of a de minimis threshold and reduced administrative burdens for businesses.

The CBAM regime is expected to expand to all sectors covered by the EU’s ETS by 2030.

Commodities covered

CBAM currently applies to carbon-intensive goods imported from outside the EU, including:

• Cement;
• Electricity, noting that electricity generated within the Exclusive Economic Zone (EEZ) or continental shelf of an EU member state is now excluded;
• Fertilisers;
• Aluminium;
• Iron and steel;
• Hydrogen; and
• Selected upstream and downstream iron, steel and aluminium products.

Under the Omnibus simplification, importers with less than 50 tonnes of covered goods are exempt from CBAM, removing 90 percent of importers from scope while still capturing 99 percent of carbon emissions.

The threshold is reviewed annually and may be adjusted to maintain the 99 percent target coverage.

The threshold does not apply to electricity and hydrogen. Imports from countries participating in or linked to the EU’s ETS (currently Iceland, Norway, Liechtenstein, Switzerland and five other territories) are excluded.

Where actual emissions data is used to determine CO2 emissions, any carbon price paid in the country of origin can be deducted from the CBAM charge.

Where default values are used, only the default carbon price for that country, as published by the European Commission (starting in 2027), will be considered.

Compliance requirements

CBAM introduces new compliance requirements and financial obligations for importers of goods to which the carbon charge applies.

An initial transitional phase (from 1 October 2023 to 31 December 2025) focused on emissions reporting, while the operational phase (from 1 January 2026) requires the purchase and surrender of CBAM certificates.

Companies must prepare for retrospective financial obligations for 2026 imports, with payments due in 2027.

CBAM requires that those entities in scope:

1. Calculate emissions using verified actual or EU default values.
2. Verify actual data through an accredited verifier (if not using registered producer or default data).
3. Purchase certificates via the EU central platform once available.
4. Submit annual CBAM declaration by 30 September each year.
5. Surrender certificates equal to verified embedded emissions by 30 September.

Compliance timeline

1 January 2026: Start of the definitive CBAM regime

Goods will not be released into the EU market unless the importer has been registered as CBAM declarant and has been verified by customs authorities.

31 March 2026: Registration of authorised declarants

CBAM importers can apply for CBAM declarant status in their respective Member State and register via the CBAM portal.

1 February 2027: Sale of CBAM certificates starts

CBAM certificates will be available from 2027 via a European Commission platform.

30 September 2027: First CBAM Declaration and certificate surrender due

CBAM declarations must be submitted via the CBAM register, accessible to authorised declarants through a unique account number. Declarations include total quantities, embedded emissions and the number of certificates to be surrendered.

31 October 2027: Repurchase of CBAM certificates

Over-purchased certificates can be repurchased by submitting a request by October 31 of the year of surrender, limited to the obligatorily purchased quantity at the original purchase price.

CBAM and your business

CBAM represents a structural shift in how carbon costs are managed across global supply chains.

For many businesses, the most significant impact will not be compliance but the progressive rise in import-related carbon costs as free ETS allowances are phased out.

Here are a few immediate steps businesses can take to prepare:

Understand CBAM compliance requirements and potential impact

Early and accurate collection of emissions data across supply chains is essential for assessing how CBAM will affect your business and ensuring compliance with evolving regulations.

Review global supply chain and CN (HS) codes for in-scope products

Conduct a strategic review of your sourcing, supply chain and customs processes, focusing on identifying products subject to CBAM and evaluating the availability of necessary data.

Prepare for reporting obligations and registration

Factor CBAM costs into budgets and forecasts now to avoid surprises and ensure your organisation is ready to meet new reporting and registration requirements.

Engage with in-scope vendors

Collaborate closely with suppliers affected by CBAM to facilitate data sharing and compliance and monitor regulatory updates as CBAM scope and requirements expand.

Key actions for 2026 to 2027

Calculate embedded direct and indirect emissions

Establish robust processes for calculating the embedded emissions of imported goods, using either actual values or default values as permitted under CBAM.

Verify actual emissions values

Where actual values are used, ensure verification is conducted by an accredited verifier to meet regulatory standards and support accurate reporting.

Acquire CBAM certificates

Secure the necessary CBAM certificates via the relevant CBAM authority to cover the carbon cost of imports and maintain compliance with EU regulations.

Prepare and file annual CBAM declarations

Develop systems to prepare and submit the annual CBAM declaration by 30 September each year, ensuring all required information is complete and accurate.

Russell Smyth is Partner, Head of Sustainable Futures and Corporate Finance at KPMG Ireland