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Glossary · Energy industry & energy transition

CBAM

CBAM Carbon border adjustment EU Emissions Trading Climate policy Industry power system

CBAM stands for Carbon Border Adjustment Mechanism (in German: CO₂-Grenzausgleichssystem). Its legal basis is Regulation (EU) 2023/956. It dates from 10 May 2023 and is part of the "Fit for 55" package. In October 2025 it was amended, above all by a simplification regulation. CBAM puts a carbon price on the embedded emissions (also called grey emissions), that is, the emissions from production, of certain goods imported from third countries into the EU customs territory. The aim is that imports in these sectors bear approximately the same carbon costs as products made in the EU under the EU Emissions Trading System.

Objective: avoiding carbon leakage

The main objective is to prevent carbon leakage. This means that emissions-intensive production relocates to countries with weaker climate policy, or that European products are displaced by more emissions-intensive imports. The emissions would then only show up in the balance outside Europe, while the products continue to be consumed in the EU. In addition, CBAM is intended to give producers in third countries an incentive to reduce their emissions and thus support the goals of the Paris Agreement. So far, carbon leakage in the EU has been limited mainly in two ways: through the free allocation of emission allowances and through aid that compensates for indirect carbon costs in electricity prices.

Covered goods and greenhouse gases

CBAM currently applies to six sectors: cement, iron and steel, aluminium, fertilisers, hydrogen and electricity. Annex I of the Regulation specifies exactly which goods are included, based on customs tariff codes. Processed downstream products have so far been covered only to a small extent, for example certain pipes, screws or wires. As in emissions trading, CO₂ and, depending on the good, also nitrous oxide and perfluorocarbons are counted, expressed in tonnes of CO₂ equivalent. Goods whose production is already subject to the EU ETS or to a carbon pricing system fully linked to it are excluded.

Timeline and obligations

A transitional phase ran from 1 October 2023 to 31 December 2025. During this time, importers had to report regularly on their emissions but did not yet have to pay anything. The definitive phase has applied since 1 January 2026. The key rules as of the current state (November 2026):

  • Threshold: Anyone who imports more than 50 tonnes net mass of CBAM goods in total in a calendar year needs the status of authorised CBAM declarant. Hydrogen and electricity do not count towards this quantity threshold. Anyone who stays below the threshold has no CBAM obligations.

  • Annual declaration: Authorised declarants report the embedded emissions of their imports once a year and surrender a corresponding number of CBAM certificates. For imports in 2026, the first declaration is due by 30 September 2027. Certificates will be sold on a central platform from February 2027. Payment is therefore made retrospectively, but for imports that have been arriving since 2026.

  • Price: One certificate represents one tonne of CO₂ equivalent. Its price is based on the auction prices in the EU Emissions Trading System: for 2026 the quarterly average applies, from 2027 the weekly average.

  • Deduction: If a carbon price has demonstrably been paid in the country of origin, the number of certificates to be surrendered is reduced. Rebates or other compensation payments in the country of origin are deducted in this process.

  • Default values: If verified measurement data on actual emissions are missing, default values set by the Commission apply. They were already corrected once in 2026.

Direct and indirect emissions

Direct emissions arise in the production process itself, for example from coke in the blast furnace, from natural gas for process heat or from the calcination of limestone in cement clinker production. Indirect emissions arise from the generation of the electricity consumed by the installation. In the transitional phase, both types had to be reported for all goods. Since 2026, indirect emissions count only for cement and fertilisers. For iron and steel, aluminium and hydrogen, only direct emissions apply, including emissions from precursors. For the very electricity-intensive aluminium in particular, the electricity mix of the country of origin is therefore currently not taken into account in CBAM costs. The background is that EU producers also have some of these indirect costs reimbursed. The Commission is examining whether the coverage will be extended later.

Electricity as a CBAM good

For imported electricity, only the direct emissions from its generation count. In principle, default values are used that are based on the CO₂ emission factor of the country of origin or the region. If there is no specific value, the EU emission factor applies. A third country can demonstrate with reliable data that its factor is lower. Importers may use actual, lower values only under strict conditions, for example with a supply contract with a specific power plant and a demonstrable cross-border delivery. Pure green electricity certificates or guarantees of origin are not sufficient for this. For the EU electricity market, this means: electricity from coal-heavy neighbouring systems becomes more expensive, and low-emission electricity from third countries gains in value. In the EU, there is in any case practically no free allocation for electricity generation, so electricity is not affected by its gradual phase-out.

Link to free allocation

CBAM gradually replaces the free allocation in emissions trading. The number of certificates to be surrendered falls to the extent that EU producers still receive free allowances for comparable products. Under current law, free allocation for CBAM sectors is reduced gradually from 2026 to 2033, initially by only 2.5 percent. From 2034, the embedded emissions are to be fully covered by CBAM certificates. The actual payment burden therefore rises over the years. In July 2026, the Commission proposed a reform of emissions trading under which this phase-out would proceed more slowly and be stretched until 2038. This is so far only a proposal and not yet applicable law.

Significance for industry and the power system

CBAM makes a low carbon footprint economically valuable for exporters to the EU. A steelworks in a third country that switches from the blast furnace to hydrogen-based direct reduction reduces its direct emissions and thus its CBAM burden. With industrial electrification, it becomes more complicated: the emissions shift to the electricity sector. How much of this becomes visible in CBAM depends on the good. For cement and fertilisers, electricity counts; for steel and aluminium, it currently does not. From a climate perspective, electrification is a gain only if the electricity is actually generated with low emissions.

Limits and misconceptions

CBAM is not a general tariff. The burden depends on the demonstrated emissions and on carbon prices already paid, not on origin as such. According to the Commission, CBAM is compatible with WTO rules. Some third countries nevertheless criticise the instrument as a trade barrier. Nor does CBAM fully prevent production relocation. It covers only a few basic materials and part of the emissions, and it does not protect EU exports on world markets. Processed downstream products could circumvent the mechanism. For this reason, in December 2025 the Commission proposed extending CBAM from 2028 to numerous downstream products that are intensive in steel and aluminium and introducing anti-circumvention rules. This proposal is still being discussed in the legislative procedure. Finally, CBAM does not rebuild installations. It creates a price incentive and transparency, but replaces neither investment nor grids nor renewable generation. How well it works depends on data quality, the verification of the information and the interplay with emissions trading.

Sources

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Edited by eCMS on 11.11.2026 17:04

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