The Carbon Border Adjustment Mechanism (CBAM) is the European Union’s carbon price on imported goods, established by Regulation (EU) 2023/956. After a transitional reporting phase that ran from 1 October 2023 to 31 December 2025, the definitive regime applies since 1 January 2026: EU importers of covered goods must hold authorised CBAM declarant status, declare verified embedded emissions each year and, from 1 February 2027, buy CBAM certificates priced from EU Emissions Trading System auctions.
A 2025 simplification, Regulation (EU) 2025/2083, reshaped the mechanism before its first compliance year: importers below 50 tonnes of covered goods per year fall outside the obligation, while around 99 percent of embedded emissions stay covered. For exporters of iron and steel, aluminium, cement and fertilisers in India and other third countries, CBAM now decides how competitive a shipment looks to its EU buyer.
What is CBAM and why the EU introduced it
EU producers pay for their greenhouse gas emissions under the EU Emissions Trading System. Without a border instrument, production could simply move to countries without a comparable carbon price, an effect known as carbon leakage, and imported goods would undercut EU goods that carry carbon costs. CBAM closes that gap: it places the same carbon price on the embedded emissions of imported goods that EU producers pay on their own emissions.
The mechanism works through certificates. The EU importer, called the authorised CBAM declarant, declares the embedded emissions of the goods it imported each year and surrenders CBAM certificates against them. The certificate price tracks the weekly EU ETS auction average, so the carbon cost of an imported tonne of steel converges with the carbon cost of an EU produced tonne. As the free allocation that EU producers receive under the ETS phases out between 2026 and 2034, the payable share of imported embedded emissions rises on the same schedule.
Which goods CBAM covers, and the 50 tonne threshold
CBAM covers six product groups, defined good by good through combined nomenclature (CN) codes in Annex I of Regulation (EU) 2023/956:
- Cement
- Iron and steel, including downstream articles that Annex I lists, such as screws, bolts and steel structures
- Aluminium
- Fertilisers
- Electricity
- Hydrogen
Coverage follows the CN classification of each good rather than its trade name, so classifying products correctly is the first step of any exposure assessment. A Commission proposal of 17 December 2025 would add around 180 further CN codes of steel and aluminium intensive downstream goods, from machinery components to metal furniture, applying from 1 January 2028, but that extension has not been adopted.
The 2025 simplification added a de minimis threshold: importers staying below 50 tonnes of covered iron and steel, aluminium, fertilisers and cement per calendar year carry no CBAM obligation. Electricity and hydrogen sit outside the exemption. Around 90 percent of importers fall below the threshold, yet close to 99 percent of embedded emissions remain covered, so the threshold relieves small buyers without relieving material exporters.
The CBAM timeline, 2023 to 2034
| From | What applies |
|---|---|
| 1 Oct 2023 | Transitional period begins: quarterly CBAM reports on embedded emissions, no financial obligation. |
| 31 Dec 2025 | Transitional period ends. |
| 1 Jan 2026 | Definitive regime: covered goods may only be imported by an authorised CBAM declarant, and 2026 imports start accruing certificate obligations on a payable share of 2.5 percent. |
| 31 Mar 2026 | Application window for authorised CBAM declarant status closed for importers who wanted uninterrupted 2026 imports. |
| 1 Feb 2027 | CBAM certificate sales open. Certificates for 2026 imports are bought and surrendered in 2027. |
| 30 Sep 2027 | First annual CBAM declaration due, covering 2026 imports. |
| 2026 to 2034 | The payable share of embedded emissions rises from 2.5 percent to 100 percent as EU ETS free allocation phases out. |
The payable share, set through Article 31 of the Regulation and the EU ETS free allocation schedule, climbs as follows:
| Year | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 |
|---|---|---|---|---|---|---|---|---|---|
| Payable share | 2.5% | 5% | 10% | 22.5% | 48.5% | 61% | 73.5% | 86% | 100% |
The early years look mild by design. A shipment that costs little in 2026 carries nearly twenty times that certificate cost by 2030 on the same emissions, so supplier decisions made now set the cost curve for the whole phase-in.
How the CBAM cost is calculated
The certificate obligation follows one formula: certificates due = embedded emissions of the goods, minus the free allocation adjustment, minus any deductible carbon price effectively paid in a third country, and the cost equals certificates due multiplied by the certificate price. Three inputs decide the outcome.
Embedded emissions. Declarants use actual installation data verified by an accredited verifier, or Commission default values. Default values, set country and product specific by Implementing Regulation (EU) 2025/2621, carry a regulatory mark-up of 10 percent in 2026, 20 percent in 2027 and 30 percent from 2028, with fertilisers on a flat 1 percent. Verified actual data from an efficient installation usually lands well below the marked-up default, which is why verification pays for itself.
The certificate price. The first official price, for the first quarter of 2026, is 75.36 EUR per tonne of CO2e, published by the European Commission on 7 April 2026. The price is set quarterly for 2026 imports and weekly from 2027, tracking EU ETS auctions.
A worked example. An Indian mill shipping 500 tonnes of flat-rolled steel per year: on default values with the mark-up, the EU buyer faces an estimated 4,435 EUR of certificates for 2026, rising to roughly 101,681 EUR for 2030 as the payable share climbs. On verified actual emissions of 2.20 tCO2e per tonne, the same volumes cost about 2,072 EUR in 2026 and 40,205 EUR in 2030. Verified data roughly halves the bill at every step of the phase-in.
Carbon price deductions. Article 9 lets a declarant deduct a carbon price effectively paid in a third country, and from 2027 the Commission may publish yearly default carbon prices per country to standardise the deduction. As of June 2026 there is no recognition of India’s Carbon Credit Trading Scheme: a draft implementing regulation published on 13 May 2026 names the United Kingdom, China and California and does not name India, so the deduction for India origin goods stands at zero today.
What the 2025 simplification changed
Regulation (EU) 2025/2083, adopted in 2025 before the definitive regime began, made the mechanism workable for smaller importers without weakening its coverage:
- The 50 tonne per importer per year de minimis threshold replaced the earlier 150 EUR per consignment exemption, removing around 90 percent of importers from scope while keeping about 99 percent of embedded emissions covered.
- Certificate purchases moved to 1 February 2027: no certificates needed to be held during 2026 itself, and obligations for 2026 imports are settled in 2027.
- The first annual declaration, covering 2026 imports, is due by 30 September 2027, with certificate surrender on the same date.
- The quarterly certificate holding requirement was cut from 80 percent to 50 percent of embedded emissions, applying from 2027.
- Default values may be used in place of verified data, with the regulatory mark-up making verified actual data the economical route for material volumes.
What exporters to the EU should do now
The obligation sits legally on the EU importer, but every input that decides the bill comes from the exporter’s side of the chain. Exporters in India and other third countries keep EU buyers by making the declarant’s job cheap and defensible:
- Classify the portfolio. Map every product to its CN code against Annex I, because coverage follows classification.
- Measure actual emissions. Calculate installation level embedded emissions rather than defaulting to marked-up Commission values.
- Verify and register. Have the data confirmed by an accredited verifier, and register the installation in the CBAM registry so verified data reaches every EU declarant centrally.
- Quantify the gap. Compare default and verified costs year by year to 2034, and put the saving on the table in buyer negotiations.
- Watch the scope. The December 2025 proposal to extend CBAM to further downstream products from 2028 would pull new product lines into scope if adopted.
CBAM questions, answered
What is CBAM in simple terms?
CBAM is the European Union's carbon price on imported goods. EU importers of covered products such as steel, aluminium, cement, fertilisers, electricity and hydrogen must buy certificates covering the greenhouse gas emissions embedded in those goods, at a price tracking the EU Emissions Trading System, so imported and EU made goods carry a comparable carbon cost.
When did CBAM start applying?
Reporting started on 1 October 2023 under a transitional period with no payment. The definitive regime applies since 1 January 2026, certificate sales open on 1 February 2027, and the first annual declaration, covering 2026 imports, is due by 30 September 2027.
Who pays under CBAM, the exporter or the importer?
The legal obligation sits on the EU importer, the authorised CBAM declarant, who files the annual declaration and surrenders certificates. The cost and the data burden flow back to the exporter through prices and buyer requirements, so exporters who supply verified low emission data keep their goods competitive.
What is the CBAM 50 tonne exemption?
Regulation (EU) 2025/2083 exempts importers who stay below 50 tonnes of covered iron and steel, aluminium, fertilisers and cement per calendar year. Electricity and hydrogen are excluded from the exemption. Around 90 percent of importers fall below the threshold while about 99 percent of embedded emissions remain covered.
How much does a CBAM certificate cost?
The official price for the first quarter of 2026 is 75.36 EUR per tonne of CO2e, published by the European Commission on 7 April 2026. The price tracks EU ETS auction averages and is set quarterly for 2026 imports and weekly from 2027. Only a payable share of embedded emissions needs certificates, rising from 2.5 percent in 2026 to 100 percent in 2034.
What happens if CBAM obligations are missed?
Each certificate missing at the 30 September surrender costs the EU ETS excess emissions penalty of 100 EUR per tonne of CO2e, indexed to European consumer prices since 2013, so the effective rate sits above that figure today. Importing covered goods above the 50 tonne threshold without authorised declarant status carries three to five times that rate under Article 26.
Does a carbon price paid in India reduce the CBAM bill?
Not at present. Article 9 allows deduction of a carbon price effectively paid in a third country, and as of June 2026 India's Carbon Credit Trading Scheme has no such recognition. A draft implementing regulation published on 13 May 2026 names the United Kingdom, China and California and does not name India.
GreenSutra supports exporters of covered goods with end to end CBAM compliance solutions covering exposure assessment, emissions measurement, verification and registry reporting, and the free CBAM cost calculator estimates the certificate exposure on EU bound shipments year by year to 2034.
