January 19, 2026
Laws, legislations, tariffs and rules
Global trade is undergoing one of the biggest regulatory shifts in decades. As governments tighten climate commitments and supply chains stretch across multiple jurisdictions, carbon transparency has moved to being a requirement.
Against this backdrop, the EU has launched the Carbon Border Adjustment Mechanism (CBAM), a landmark policy that affects anyone importing carbon-intensive goods.
What is CBAM?
The Carbon Border Adjustment Mechanism is the EU’s new carbon border tax, the first of its kind in the world. It’s designed to put a fair and transparent price on the carbon emissions released during the production of certain goods imported into the EU.
Why is CBAM being introduced?
- Preventing carbon leakage: Without intervention, companies can shift production to countries with low environmental standards, creating a loophole that actually increases global emissions. CBAM aims to stop this offshoring of carbon-intensive manufacturing.
- Creating a level playing field for EU businesses: European manufacturers already pay for their emissions under the EU Emissions Trading System (ETS). CBAM means foreign producers face a comparable cost, so cheaper, high-carbon imports don’t undercut EU companies.
- Driving global decarbonisation: By linking carbon cost directly to trade, CBAM pushes companies worldwide to reduce emissions if they want to remain competitive in the EU market.
In short, CBAM is a carbon-pricing tool that equalises environmental standards, rewards cleaner production, and discourages emissions-heavy imports.
How the Carbon Border Adjustment Mechanism works
CBAM currently applies to a set of carbon-intensive sectors and industries that are responsible for significant greenhouse gas emissions:
- Iron and steel
- Aluminium
- Cement
- Fertilisers
- Electricity
- Hydrogen
- Certain precursors and derivatives of these materials
CBAM follows a straightforward, four-step process that makes sure imported goods are priced fairly based on their carbon footprint:
1. Calculate the embedded emissions
Importers must work with suppliers to determine the greenhouse gases emitted during production, including direct emissions and, where required, some indirect emissions.
2. Purchase CBAM certificates
Based on the calculated emissions, importers buy CBAM certificates. Each certificate represents the carbon price that would have applied if the product had been made under the EU Emissions Trading System (ETS).
3. Submit certificates annually
Starting in 2026, importers will need to buy certificates in advance and surrender the correct number every year to stay compliant.
4. Deduction for carbon costs already paid abroad
If the foreign manufacturer has already paid a carbon price in their home country, this amount is deducted, preventing double-charging and rewarding lower-carbon production.
CBAM timeline: key dates you need to know
The rollout spans several years, giving businesses time to adapt:
1 October 2023 – Start of the transitional phase: Importers began reporting emissions data quarterly for goods in scope. No payments were required at this stage.
31 January 2024 – First CBAM declaration deadline
This covered imports from Q4 2023, with quarterly reporting continuing throughout the transition.
31 December 2025 – Transition ends
Annual reporting replaces quarterly submissions. Importers must now obtain CBAM certificates before bringing goods into the EU.
1 January 2026 – Full system goes live
Carbon pricing becomes fully enforced, and non-compliant businesses face harsher consequences.
Penalties for non-compliance
The EU isn’t leaving room for ambiguity. Penalties apply from the start of the transitional phase for businesses that fail to submit accurate CBAM declarations.
From 1 January 2026, failing to purchase or present the required CBAM certificates can: block imports at the EU border, trigger significant financial penalties, create operational delays and supply chain disruption, and damage importer credibility with authorities and clients. In other words, non-compliance will be expensive, both financially and strategically.
Why CBAM matters and what businesses should do now
The introduction of CBAM marks a major shift in global trade, signalling that carbon transparency is no longer optional. The message is clear: if your supply chain emits heavily, the cost will follow your goods into the EU.
Forward-thinking businesses should now:
- Map their supply chains and identify high-carbon inputs
- Begin measuring emissions using verifiable methodologies
- Engage suppliers early, especially those outside the EU
- Explore alternative low-carbon materials
- Build CBAM-related costs into pricing and long-term procurement strategies
CBAM isn’t just a regulatory hurdle, it’s a signpost for where global trade is headed. Companies need to be transparent, resilient and align with the future of sustainable commerce.