CBAM (Carbon Border Adjustment Mechanism)
An EU levy on the embedded emissions of imported carbon-intensive goods, aligning their carbon cost with that paid by EU producers under the EU ETS.
The Carbon Border Adjustment Mechanism (Regulation (EU) 2023/956) addresses carbon leakage: the risk that production moves to jurisdictions without a carbon price. Importers must buy CBAM certificates priced at the weekly average EU ETS auction price for the emissions embedded in their goods.
Covered sectors: cement, iron and steel, aluminium, fertilisers, hydrogen and electricity, including some downstream products. A transitional phase from October 2023 to end-2025 required reporting only. The definitive phase began on 1 January 2026, with the first certificate surrender for 2026 imports due in 2027. A 2025 simplification package exempted importers below 50 tonnes of covered goods per year, removing most small importers while keeping about 99% of embedded emissions in scope.
The CBAM obligation phases in as EU free allocation is phased out between 2026 and 2034. Embedded emissions use actual installation data where verified, otherwise default values that penalise opacity. Exporters most exposed include steel and aluminium producers in China, India, Türkiye and Russia, and electricity exporters in the Western Balkans.
Related terms
All terms →- Emissions Trading System (ETS)
A cap-and-trade market in which a regulator caps total emissions, issues tradable allowances, and requires covered installations to surrender one allowance per tonne emitted.
- Carbon price
A cost applied per tonne of CO2e emitted, through a carbon tax or an emissions trading system, so that the climate damage of emissions enters market prices.
- Carbon intensity of electricity
The mass of CO2 (or CO2e) emitted per unit of electricity generated or consumed, usually expressed in grams per kilowatt-hour (gCO2/kWh).
- Green hydrogen
Hydrogen produced by splitting water in an electrolyser powered by renewable electricity, with near-zero direct CO2 emissions.
- Scope 3 emissions
All other indirect emissions in an organisation’s value chain, upstream and downstream, not covered by Scope 1 or Scope 2.