The Carbon Border Adjustment Mechanism (CBAM) is the European Union’s carbon price on imported goods, established by Regulation (EU) 2023/956. A transitional reporting phase 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 and declare embedded emissions each year, from verified actual data or default values. From 1 February 2027, they 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 at or below 50 tonnes of covered goods per year fall outside the obligation. Even so, 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 authorised CBAM declarant, an EU importer or an indirect customs representative that holds the status, declares the embedded emissions of the goods imported each year. The declarant surrenders certificates for the embedded emissions minus the free allocation adjustment, and minus any carbon price deduction, never below zero. The adjustment mirrors the free allocation EU producers of the same good still receive. On default values it is the good’s CBAM benchmark, times the CBAM factor for the year, times the cross-sectoral correction factor, times the mass imported. As that free allocation phases out between 2026 and 2034, the deduction shrinks on the same schedule. The certificate price follows EU ETS auction prices: a quarterly average for 2026 imports and a weekly average from 2027. The carbon cost of an imported tonne of steel therefore converges with that of an EU produced tonne.
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. It would apply from 1 January 2028. That extension has not been adopted.
The 2025 simplification added a de minimis threshold: importers at or below 50 tonnes of covered iron and steel, aluminium, fertilisers and cement per calendar year carry no CBAM obligation. An importer that goes over 50 tonnes during a year owes CBAM on every tonne imported that year, not only the excess. 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, except for importers at or below 50 tonnes a year, and 2026 imports start accruing certificate obligations for the embedded emissions minus the free allocation adjustment. |
| 31 Mar 2026 | Cut-off for the rule that let an applicant keep importing while its application for authorised CBAM declarant status was pending. Applications for the status can be made at any time. |
| 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 deduction shrinks each year as EU ETS free allocation phases out. The CBAM factor falls from 97.5 percent in 2026 to 14 percent in 2033, and from 2034 nothing is deducted for free allocation. |
Article 31 of the Regulation ties the deduction to free allocation under the EU ETS Directive. The CBAM factor in that Directive sets the share of the benchmark still deducted each year:
| Year | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 |
|---|---|---|---|---|---|---|---|---|---|
| Share of the benchmark still deducted (CBAM factor) | 97.5 percent | 95 percent | 90 percent | 77.5 percent | 51.5 percent | 39 percent | 26.5 percent | 14 percent | 0 percent |
In 2026, 2.5 percent of the benchmark is no longer deducted. That figure is not 2.5 percent of the embedded emissions. How fast the bill grows depends on how far a good’s emissions sit above its benchmark. On default values, Indian hot-rolled flat steel (CN 7208) needs 3.372 certificates a tonne in 2026 and about 4.86 in 2030, if the benchmark stays at its 2026 value. That is about 1.4 times, before any change in price. A plant whose emissions equal the benchmark starts far lower and rises much faster.
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. 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. The monitoring plan behind actual installation data is explained in CBAM Monitoring Plan in 2026. 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 can land below the marked-up default. Whether verification pays for itself depends on the installation and the volumes.
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 second-quarter price is 75.28 EUR, published on 6 July 2026, and the third-quarter price is 82.32 EUR, published on 5 October 2026. Each applies to goods imported in that quarter. The price is set quarterly for 2026 imports and weekly from 2027, tracking EU ETS auctions.
A worked example. An Indian mill ships 500 tonnes of hot-rolled flat steel (CN 7208) to the EU in the third quarter of 2026, declared on default values. The default value of 4.280 tonnes of CO2e per tonne, with the 10 percent mark-up, gives 4.708. The free allocation adjustment is 0.975 x 1.00 x 1.370 (CBAM factor x correction factor x default benchmark), or 1.336. The declarant surrenders 4.708 minus 1.336, or 3.372 certificates a tonne. For 500 tonnes that is 1,686 certificates, about 138,792 EUR at the third-quarter 2026 price of 82.32 EUR.
Carbon price deductions. Under Article 9, where actual emissions are declared, a carbon price effectively paid in a third country can be deducted, net of any rebate. The European Union does not have to recognise the foreign scheme first, so India’s carbon price can count on the same terms. With default values, a deduction needs yearly default carbon prices, which the Commission may publish from 2027. It had published none by 15 October 2026. The rules for converting a foreign price are still a draft.
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, after the free allocation adjustment, 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 with the authorised CBAM declarant, 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 verified by an accredited verifier, register the installation in the CBAM registry, and disclose the verification information to each EU declarant.
- 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. The authorised CBAM declarant for covered products such as steel, aluminium, cement, fertilisers, electricity and hydrogen must buy certificates for their embedded emissions, less the free allocation adjustment. The price tracks 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 with the authorised CBAM declarant, an EU importer or an indirect customs representative that holds the status. The declarant 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 at or below 50 tonnes of covered iron and steel, aluminium, fertilisers and cement per calendar year. Going over 50 tonnes brings every tonne imported that year into scope. 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 second-quarter price is 75.28 EUR and the third-quarter price is 82.32 EUR, each for goods imported in that quarter. The price tracks EU ETS auction averages and is set quarterly for 2026 imports and weekly from 2027. The authorised CBAM declarant surrenders certificates for the embedded emissions minus the free allocation adjustment. That deduction shrinks each year, and from 2034 nothing is deducted for free allocation. For example, one tonne of Indian hot-rolled flat steel (CN 7208) imported in the third quarter of 2026 on default values needs 3.372 certificates. At the third-quarter price of 82.32 EUR, that is about 278 EUR.
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. Paying the penalty does not release the declarant from surrendering the missing certificates. 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?
Under Article 9 of the Regulation, India's carbon price can count where actual emissions are declared and the price was effectively paid, net of any rebate. The European Union does not have to recognise the foreign scheme first. With default values, a deduction needs the yearly default carbon prices, and the Commission had published none by 15 October 2026. The rules for converting a foreign price are still a draft.
Full CBAM Q&A: What is CBAM? · Which sectors are covered · When CBAM takes effect · Who is the authorised declarant · Penalties for non-compliance · The simplification package
GreenSutra works with exporters of covered goods as a CBAM consultant in India. The work covers exposure assessment, emissions measurement, preparation for verification by an accredited verifier, and registry reporting. GreenSutra prepares the installation data and the records that an accredited verifier checks. It does not verify. The CBAM cost calculator estimates the certificate exposure on EU bound shipments year by year to 2034.
