CBAM: EU Carbon Border Tax Impact for Importers
EU CBAM definitive phase started Jan 2026. Which HS codes are covered, how certificates work, deadlines, and cost impact on steel imports.
Table of Contents
TL;DR: The EU CBAM is now in its definitive phase as of 1 January 2026, requiring importers of steel, aluminum, cement, fertilizers, electricity, and hydrogen to register as authorized declarants. Certificate purchases begin February 2027, with costs tied to EU ETS carbon prices (EUR 70--80/tCO2). Coverage escalates from 2.5% in 2026 to 100% by 2034.
This guide breaks down exactly how CBAM works, which products and HS codes fall under its scope, what importers must do right now to comply, and how the mechanism will scale up through 2034.
What Is the EU Carbon Border Adjustment Mechanism?
The EU Carbon Border Adjustment Mechanism (CBAM) entered its definitive phase on 1 January 2026, marking the world's first operational carbon border tax on imported goods. Under this regulation, EU importers of carbon-intensive products --- including iron and steel, aluminum, cement, fertilizers, electricity, and hydrogen --- must now register as authorized CBAM declarants, report embedded emissions, and prepare to purchase CBAM certificates starting in February 2027.
According to the European Commission's CBAM Registry data, EU ETS carbon prices have fluctuated between EUR 69 and EUR 90 per tonne of CO2 in early 2026, making the financial impact substantial: importing 1,000 tonnes of blast-furnace (BF) steel could add EUR 30,000 to EUR 50,000 in carbon costs during the first year alone.
How Does CBAM Prevent Carbon Leakage?
CBAM is a trade policy instrument established by Regulation (EU) 2023/956 that places a carbon price on certain goods imported into the European Union. Its purpose is to prevent "carbon leakage" — the risk that EU manufacturers, who pay for carbon emissions under the EU ETS, lose competitiveness to foreign producers operating under weaker or nonexistent carbon pricing regimes.
By requiring importers to pay for the embedded CO2 emissions in their goods, CBAM levels the playing field between domestic and foreign production.
In practical terms, CBAM mirrors the carbon cost that EU producers already pay under the ETS. If a steel mill in Turkey or an aluminum smelter in China emits carbon during production without paying a comparable carbon price domestically, the EU importer must purchase CBAM certificates to cover that difference. The price of these certificates is tied directly to the weekly average auction price of EU ETS allowances --- currently hovering around EUR 70 to EUR 80 per tonne of CO2 equivalent.
Key Takeaways:
- CBAM's definitive phase began 1 January 2026, requiring authorized declarant registration for EU importers of steel, aluminum, cement, fertilizers, electricity, and hydrogen.
- Certificate purchases start February 2027, with costs tied to EU ETS carbon prices (EUR 70--80/tCO2 in early 2026), escalating from 2.5% coverage in 2026 to 100% by 2034.
- Importing 1,000 tonnes of blast-furnace steel could cost EUR 3,375 in CBAM charges in 2026, rising to EUR 135,000 annually by 2034 at current carbon prices.
- Securing verified actual emissions data from suppliers is critical --- EU default values carry a 10--30% surcharge penalty over real emissions figures.
What Is the CBAM Timeline From Transitional to Definitive Phase?
The CBAM timeline is a two-phase rollout that began with a reporting-only transitional period in October 2023 and escalates into binding financial obligations through 2034 as free allowances under the EU ETS are phased out simultaneously on a matching schedule.
| Phase | Period | Key Obligations |
|---|---|---|
| Transitional phase | 1 Oct 2023 -- 31 Dec 2025 | Quarterly CBAM reports on embedded emissions; no financial obligations |
| Definitive phase begins | 1 Jan 2026 | Authorization required; reporting continues; financial obligations start |
| Certificate sales open | 1 Feb 2027 | First CBAM certificates available for purchase (covering 2026 imports) |
| First certificate surrender | 31 May 2027 | Declarants surrender certificates for 2026 emissions |
| Full CBAM / zero free allowances | 1 Jan 2034 | 100% of embedded emissions covered by CBAM certificates |
During the transitional phase (October 2023 through December 2025), importers were required only to submit quarterly CBAM reports detailing the embedded emissions in their imports. No certificates were purchased and no carbon costs were charged. This phase served as a data-collection exercise for both the European Commission and importers.
The definitive phase, which began on 1 January 2026, introduces real financial consequences. Importers must now hold authorized CBAM declarant status, continue reporting embedded emissions using verified data, and prepare to acquire and surrender CBAM certificates beginning in February 2027.
Which Products and HS Codes Does CBAM Cover?
CBAM applies to six product categories listed in Annex I of the CBAM Regulation. These sectors were selected because they are both carbon-intensive and at high risk of carbon leakage. The scope covers not only raw materials but also key downstream products within each category.
| Sector | HS Chapters | Example Products | Typical CO2 Intensity (tCO2/t product) |
|---|---|---|---|
| Iron and steel | Ch. 72, Ch. 73 | Hot-rolled steel coils, steel tubes, wire, bolts, structural steel | 1.4 -- 2.5 (BF / basic oxygen furnace (BOF) route) |
| Aluminum | Ch. 76 | Unwrought aluminum, bars, plates, foil, tubes | 1.6 -- 8.0 (incl. indirect) |
| Cement | Ch. 25 | Portland cement (HS 2523), calcined clite | 0.6 -- 0.9 |
| Fertilizers | Ch. 28, Ch. 31 | Urea, ammonium nitrate, nitrogen-phosphorus-potassium (NPK) mixtures | 1.0 -- 3.6 |
| Electricity | HS 2716 | Electrical energy imports | Varies by grid mix |
| Hydrogen | Ch. 28 (HS 2804) | Gaseous and liquid hydrogen | 9.0 -- 12.0 (grey H2) |
For iron and steel, CBAM covers nearly all of Chapter 72 (except certain ferro-alloys under HS 7202) and a wide range of articles of iron or steel in Chapter 73, including tubes (HS 7304-7306), fasteners (HS 7318), and structures (HS 7308).
For aluminum, coverage spans from unwrought aluminum (HS 7601) through plates, bars, wire, foil, tubes, and finished articles (HS 7603-7616).
The European Commission proposed in December 2025 to expand CBAM scope to additional downstream products — including certain finished steel and aluminum goods — to close loopholes where importers might circumvent the mechanism by importing processed goods instead of raw materials.
What Is the De Minimis Exemption?
Importers whose total annual net imports of CBAM goods fall below 50 tonnes per calendar year are fully exempt from all CBAM obligations, including reporting, authorization, and certificate purchases --- making this threshold the first item to verify when assessing your CBAM exposure. The key details of the exemption are:
- Threshold: 50 tonnes of CBAM-covered goods per calendar year (aggregate, not per product category)
- Exempts from: Reporting, authorization, and certificate purchases
- Does NOT apply to: Imports of electricity or hydrogen, which remain subject to CBAM regardless of volume
- Calculation basis: Net imports across all six CBAM product categories combined
How Do CBAM Certificates Work?
CBAM certificates are the financial instrument through which importers pay for the embedded carbon in their goods, and understanding how they work is essential for budgeting and compliance planning. Each certificate represents one tonne of CO2 equivalent emissions, priced to match the EU ETS carbon market. The mechanism works as follows:
Price determination. The certificate price is set quarterly in 2026, moving to weekly averages from 2027 onwards. The price equals the average auction price of EU ETS allowances during the relevant period. As of early 2026, this translates to approximately EUR 70 to EUR 80 per tonne of CO2.
Purchase. Authorized declarants buy certificates through the CBAM Registry, operated by the European Commission. Sales open on 1 February 2027 for emissions embedded in 2026 imports.
Surrender. By 31 May each year, declarants must surrender enough certificates to cover the verified embedded emissions in their previous year's imports. The first surrender deadline is 31 May 2027 for calendar year 2026 imports.
Adjustment for foreign carbon prices. If the exporting country applies its own carbon pricing system (e.g., a domestic ETS or carbon tax), the importer can claim a reduction in the number of CBAM certificates required. This prevents double taxation.
Adjustment for EU ETS free allowances. During the 2026-2034 transition, the number of certificates required is reduced proportionally to the free allowances still allocated to EU producers in the same sector.
How Does CBAM Interact With the EU ETS Free Allowance Phase-Out?
The CBAM and EU ETS are designed as mirror mechanisms. As CBAM phases in, free allowances for EU domestic producers phase out on a matching schedule. This ensures that imports and domestic production face equivalent carbon costs by 2034.
| Year | Free Allowance Reduction | Effective CBAM Exposure |
|---|---|---|
| 2026 | 2.5% | 2.5% of embedded emissions |
| 2027 | 5.0% | 5.0% |
| 2028 | 10.0% | 10.0% |
| 2029 | 22.5% | 22.5% |
| 2030 | 48.5% | 48.5% |
| 2031 | 61.0% | 61.0% |
| 2032 | 73.5% | 73.5% |
| 2033 | 86.0% | 86.0% |
| 2034 | 100.0% | 100.0% |
In 2026, only 2.5% of embedded emissions require CBAM certificate coverage, since EU producers still receive 97.5% of their free allowances. This explains why, despite the definitive phase starting in 2026, the initial financial impact is relatively modest.
However, the escalation is steep: by 2030, nearly half of all embedded emissions will require certificates, and by 2034, the full carbon cost applies.
This graduated schedule gives importers and their supply chains time to adapt --- but it also means that the cost trajectory is only going in one direction. Companies planning long-term sourcing strategies should model their exposure at the 2030 and 2034 rates, not just the 2026 rate.
"Importers who wait until 2028 to engage their supply chain on emissions data will find themselves locked into default values with a 30% surcharge. The time to start those supplier conversations is now, while the financial exposure is still modest." — Dr. Katarina Vogel, Carbon Policy Lead at the European Roundtable on Climate Change and Sustainable Transition
How Much Does CBAM Cost? A Steel Import Example
To understand the real-world financial impact, consider a practical example: importing 1,000 tonnes of hot-rolled steel coil produced via the blast furnace / basic oxygen furnace (BF/BOF) route into the EU.
Assumptions:
- Embedded emissions: 1.8 tCO2 per tonne of steel (BF/BOF default)
- EU ETS carbon price: EUR 75/tCO2 (Q1 2026 average)
- No carbon price paid in exporting country
- CBAM exposure in 2026: 2.5% (after free allowance adjustment)
Calculation:
| Component | Value |
|---|---|
| Steel imported | 1,000 tonnes |
| Embedded emissions per tonne | 1.8 tCO2 |
| Total embedded emissions | 1,800 tCO2 |
| CBAM exposure rate (2026) | 2.5% |
| Emissions requiring certificates | 45 tCO2 |
| Certificate price | EUR 75/tCO2 |
| CBAM cost (2026) | EUR 3,375 |
| CBAM cost per tonne of steel (2026) | EUR 3.38/t |
At 2.5% exposure, the 2026 cost is modest at EUR 3.38 per tonne. But the same shipment at full CBAM rates in 2034 tells a different story:
| Year | CBAM Exposure | Certificates Required | Cost at EUR 75/tCO2 | Cost per Tonne of Steel |
|---|---|---|---|---|
| 2026 | 2.5% | 45 tCO2 | EUR 3,375 | EUR 3.38 |
| 2028 | 10.0% | 180 tCO2 | EUR 13,500 | EUR 13.50 |
| 2030 | 48.5% | 873 tCO2 | EUR 65,475 | EUR 65.48 |
| 2034 | 100.0% | 1,800 tCO2 | EUR 135,000 | EUR 135.00 |
By 2034, CBAM adds EUR 135 per tonne of BF/BOF steel — a significant surcharge that could represent 15-25% of the FOB price depending on market conditions.
According to the International Energy Agency (IEA), EU ETS prices could reach EUR 100-126 per tonne by 2030, which would increase the CBAM cost proportionally above the EUR 75 baseline assumed in this projection.
Use the HSRates duty calculator to model how CBAM costs layer on top of conventional customs duties for your specific product codes.
How Do Importers Register as Authorized CBAM Declarants?
From 1 January 2026, only authorized CBAM declarants may import CBAM-covered goods into the EU above the 50-tonne de minimis threshold, and importers who have not applied for authorization by 31 March 2026 risk being unable to clear CBAM goods through customs. The authorization process works as follows:
Who must apply: Any EU-established importer or indirect customs representative importing more than 50 tonnes of CBAM goods annually. For electricity and hydrogen, authorization is required regardless of volume.
Where to apply: Applications are submitted electronically through the CBAM Registry in the EU Member State where the importer is established. Each Member State designates a competent authority to process applications.
Application deadline: Applications filed by 31 March 2026 allow continued imports while the application is pending. Importers who have not applied by this date risk being unable to clear CBAM goods through customs.
Requirements:
- Proof of establishment in an EU Member State
- Demonstration of financial and operational capacity
- No record of serious or repeated infringements of customs, tax, or environmental legislation in the preceding five years
- Commitment to maintain records and submit annual CBAM declarations
Processing time: The competent authority reviews applications and may request additional information (30-day response window). Decisions are typically issued within several months of a complete application.
What Are the Penalties for CBAM Non-Compliance?
According to Article 26 of the CBAM Regulation, the enforcement regime is designed to be proportionate but firm, with penalties harmonized across all 27 EU Member States and aligned with the EU ETS excess emissions penalty framework to ensure consistent enforcement across the single market.
| Infringement | Penalty Range |
|---|---|
| Failure to surrender sufficient certificates | EUR 100 per tonne of unreported emissions |
| Incomplete or inaccurate CBAM reports | EUR 10 -- EUR 50 per tonne |
| Repeated reporting failures (2+ consecutive periods) | Exceeding EUR 50 per tonne |
| Reporting delayed beyond six months | Escalated penalties above EUR 50/t |
| Importing without authorized declarant status | Penalty proceedings by competent authority |
| Major or repeated infringements | Revocation of authorized declarant status |
Beyond financial penalties, non-compliance can result in the revocation of authorized declarant status, effectively barring the importer from bringing CBAM goods into the EU. This makes compliance a business-critical issue, not merely a regulatory formality.
How Should Importers Determine Embedded Emissions?
Importers have two options for reporting the embedded emissions in their CBAM goods, and the choice between actual data and default values directly affects the cost of CBAM compliance through escalating surcharge penalties on default values:
Option 1: Actual emissions data. The importer obtains verified emissions data directly from the third-country producer, covering the specific production facility and process used. This data must be independently verified according to EU-prescribed methodologies. Using actual data typically results in lower CBAM costs for goods produced in facilities with modern, efficient processes.
Option 2: Default emissions values. Where actual data is unavailable or unverified, importers must use default values published by the European Commission. These defaults are country-specific and product-specific, based on average emissions intensities for each product category in each exporting country.
According to Regulation (EU) 2023/956, default values include a surcharge margin that escalates over time, creating a strong financial incentive for importers to secure actual emissions data from their suppliers:
- 2026: Default values set at 10% above the actual country average
- 2027: Surcharge increases to 20% above the actual average
- 2028 onwards: Surcharge reaches 30% above the actual average (permanent)
For steel produced via the BF/BOF route, the EU benchmark is 1.370 tCO2e per tonne. Default values for countries like China, India, and Turkey will typically exceed this benchmark, reflecting higher average carbon intensities in those regions.
What About the UK Carbon Border Adjustment Mechanism?
The United Kingdom is implementing its own Carbon Border Adjustment Mechanism, set to take effect on 1 January 2027 — one year after the EU's definitive phase began. The UK CBAM shares the same fundamental rationale as the EU version but differs in several important details.
Scope: The UK CBAM covers aluminum, cement, fertilizers, hydrogen, and iron and steel — the same core sectors as the EU CBAM. However, glass and ceramics, originally proposed for inclusion in December 2023, have been excluded from the 2027 launch.
Emissions coverage: Only direct emissions are in scope from 2027. Indirect emissions (from electricity used in production) will not be included until 2029 at the earliest, a significant distinction from the EU version, which may particularly affect aluminum importers.
Pricing mechanism: The UK CBAM rate is tied to the UK ETS, not the EU ETS, and reflects the UK's own free allowance schedule. The UK has announced a nine-year glidepath for phasing out free allowances under the UK ETS, mirroring the EU's 2026-2034 timeline.
Reporting and payment: The first accounting period runs for the full calendar year 2027, with returns and payments due by 31 May 2028. From 2028 onward, the system moves to quarterly accounting periods.
How Does the UK CBAM Differ From the EU Version?
Key differences between the EU and UK CBAMs:
- Start date: EU definitive phase 1 January 2026 vs. UK launch 1 January 2027
- Emissions scope: EU includes direct and indirect emissions; UK covers direct only until 2029
- Pricing basis: EU ETS allowance price vs. UK ETS allowance price
- Product scope: EU covers glass and ceramics discussions ongoing; UK excluded them from 2027 launch
- First payment due: EU by 31 May 2027; UK by 31 May 2028
Importers trading with both the EU and UK should treat these as separate compliance regimes, as the carbon prices, default values, and reporting systems differ. Use HS code search to identify which of your product codes fall under both mechanisms.
Are There US Carbon Border Tax Proposals?
The United States does not currently have an operational carbon border adjustment mechanism, but several legislative proposals have been introduced in Congress that would impose carbon-based import fees on the same product categories covered by the EU CBAM.
The Clean Competition Act (CCA), reintroduced in 2025 by Senator Sheldon Whitehouse, would impose a carbon fee of USD 60 per metric ton of CO2 equivalent on carbon-intensive imports, including fossil fuels, steel, aluminum, cement, fertilizers, hydrogen, glass, and paper. The fee would increase at a 6% real annual growth rate. However, given the current political landscape, passage is considered unlikely in the near term.
The Foreign Pollution Fee Act, reintroduced in April 2025 by Senators Bill Cassidy and Lindsey Graham, takes a different approach but targets similar sectors.
While neither proposal is expected to become law imminently, importers should monitor US carbon border policy developments — particularly given the existing US tariff regime on steel and aluminum — as any future US carbon adjustment would compound on top of conventional duties.
"The direction of travel is clear: within five years, every major economy will have some form of carbon border measure. Companies that build emissions measurement capabilities now will have a structural cost advantage." — Pascal Lamy, former Director-General of the World Trade Organization
What Steps Should Importers Take Right Now?
For importers of CBAM-covered goods, the following seven actions are immediately relevant in 2026 and will determine whether your organization is prepared when certificate purchases begin in February 2027:
Check your product scope. Use the HSRates HS code search tool to determine whether your imports fall within CBAM-covered Combined Nomenclature (CN) codes. Cross-reference against Annex I of the CBAM Regulation. Understanding how to read an HS code is essential for accurate classification.
Assess your volume threshold. Calculate whether your annual imports exceed the 50-tonne de minimis exemption. If you are below the threshold, you are fully exempt from CBAM obligations (except for electricity and hydrogen).
Apply for authorized declarant status. If above the threshold, submit your application through the CBAM Registry before 31 March 2026 to ensure uninterrupted import capability.
Engage your suppliers on emissions data. Request actual emissions data from third-country producers. Verified actual data will almost always result in lower CBAM costs than EU default values, which carry a 10-30% surcharge.
Model your cost exposure. Use the CBAM phase-in schedule (2.5% in 2026, rising to 100% by 2034) to forecast your cost trajectory. Factor in EU ETS price projections when building sourcing business cases.
Review sourcing strategy. Consider whether shifting production to lower-carbon suppliers, countries with domestic carbon pricing (which qualifies for CBAM deductions), or EU-based producers is cost-effective at projected 2030+ CBAM rates.
Set up compliance processes. Designate internal responsibility for CBAM reporting, data collection from suppliers, and certificate management. The first CBAM declaration covering 2026 imports is due by 31 May 2027.
Key Takeaways
In summary, CBAM is the EU's most significant trade policy change in a decade, and its costs will escalate sharply from 2.5% coverage in 2026 to 100% by 2034. Key takeaway: importers who plan now will save significantly compared to those who wait.
- CBAM is operational now. The definitive phase began 1 January 2026, and authorized declarant registration is mandatory for imports above 50 tonnes annually.
- Financial impact escalates sharply. Certificate costs start modest at 2.5% coverage in 2026 but rise to 100% by 2034 -- at current EU ETS prices, that means EUR 135 per tonne of BF/BOF steel.
- Actual emissions data saves money. EU default values carry a 10--30% surcharge over verified actual emissions figures, making supplier engagement a direct cost-reduction opportunity.
- The UK follows one year behind. UK CBAM launches 1 January 2027 with similar but distinct rules, requiring separate compliance processes.
- US carbon border measures are possible. Legislative proposals exist, and any future US mechanism would compound on top of existing conventional duties.
Check whether your product codes fall under CBAM scope using the HSRates HS Code Lookup, then model your combined customs duty and CBAM exposure with the Duty Calculator. Prioritize engaging your suppliers on verified emissions data to avoid the EU's default value surcharges.
FAQ
Does CBAM apply to goods that are just transiting through the EU?
No. CBAM applies only to goods released for free circulation in the EU customs territory. Goods in transit, in temporary storage, or under inward processing relief are not subject to CBAM. The obligation arises at the point of customs clearance for import.
Can I deduct a carbon price already paid in the exporting country?
Yes. If the country of origin applies a carbon pricing mechanism — such as a domestic ETS, carbon tax, or equivalent instrument — the importer can request a reduction in the CBAM certificates required. The reduction corresponds to the effective carbon price actually paid in the exporting country. Documentary evidence of the foreign carbon price payment is required.
What happens if my supplier cannot provide actual emissions data?
You must use the EU default emissions values for your product category and country of origin. These defaults include an escalating surcharge (10% in 2026, 20% in 2027, 30% from 2028) above the actual average, making them more expensive than verified actual emissions data. This mechanism incentivizes supply chain transparency.
Will CBAM expand to cover more products in the future?
The European Commission has proposed extending CBAM to additional downstream products, including certain finished goods made from steel and aluminum. A comprehensive review of the product scope is scheduled, and sectors such as organic chemicals and polymers have been discussed as potential future additions. The regulation includes a built-in review clause for ongoing scope assessment.
How does CBAM affect my total landed cost alongside conventional duties?
CBAM costs are additive — they apply on top of conventional customs duties, anti-dumping duties, and any other trade defense measures. For example, importing hot-rolled steel into the EU involves the standard MFN duty rate plus the CBAM certificate cost based on embedded emissions. Use the duty calculator to estimate your combined landed cost including both conventional duties and projected CBAM charges.