CBAM Explained: How the EU and UK Carbon Border Taxes Work

The Carbon Border Adjustment Mechanism (CBAM) puts a carbon price on certain goods when they cross a border, based on the greenhouse gas emissions released to make them. The EU scheme is already in its definitive phase from 1 January 2026. A separate UK scheme is scheduled to start on 1 January 2027. If you import cement, steel, aluminium, fertiliser, hydrogen or electricity, or you sell them into Europe or Britain, this guide sets out what applies to you and what to do next.

Key Takeaways

• CBAM charges importers for the emissions embedded in selected carbon-intensive goods, so imports face a carbon cost similar to what EU producers pay under the EU Emissions Trading System (ETS).

• The EU’s financial phase began on 1 January 2026. Authorised declarants file an annual declaration and surrender certificates by 30 September of the following year.

• The UK CBAM is scheduled to start on 1 January 2027, with registration scheduled to open on 1 January 2028. Its scope and timetable differ from the EU’s.

• Non-EU producers are not charged directly, but their importers need their verified emissions data. Collecting it early is the most practical preparation.

What CBAM is and why it exists

CBAM is a border carbon-pricing mechanism for emissions embedded in specified imported goods. The Council of the EU explains that EU producers pay carbon costs under the ETS while producers outside the EU often do not. That creates a risk of carbon leakage, where production and emissions simply move to countries with weaker climate policy. CBAM is meant to level the price, and to encourage cleaner industrial production in non-EU countries.

The legal basis is Regulation (EU) 2023/956, which also ties the scheme to Paris Agreement goals. CBAM also allows the EU to phase out the free ETS allowances that high-risk sectors have received.

Is it a tax or a tariff? Businesses often describe it as a carbon tax or import duty, and that is how it feels on the balance sheet. Legally, though, the importer buys and surrenders CBAM certificates priced by reference to the ETS.

Does it work? OECD analysis from March 2025 estimated that, without CBAM, about 0.19 tonnes of emissions would leak overseas for every tonne cut in the EU under tighter ETS policy. It also modelled CBAM lifting the global reduction from 0.39% to 0.54%. These are scenario-based estimates, not guaranteed outcomes.

Which goods does the EU CBAM cover?

The EU covers selected goods in cement, iron and steel, aluminium, fertiliser, electricity and hydrogen. The OECD reported that the initial list held 303 energy-intensive products, representing about 3% of EU imports. Coverage is defined by customs commodity codes, so check your exact tariff code rather than assuming a product is in or out.

Exemptions and exclusions

Two carve-outs matter most:

• The 50-tonne threshold. There is a single exemption of 50 tonnes per importer per calendar year, counted cumulatively across iron and steel, aluminium, fertilisers and cement. It does not apply to electricity or hydrogen.

• Linked or covered territories. Imports originating in Iceland, Liechtenstein, Norway and Switzerland, and in certain listed territories, are excluded where the EU ETS applies or is fully linked.

Who has to comply in the EU?

Importers, or indirect customs representatives, bringing in more than 50 tonnes must apply to become authorised CBAM declarants. Since 1 January 2026, importers must be authorised declarants to bring CBAM goods into the EU customs territory.

The Commission’s Q&A says the declarant is the importer or the indirect customs representative, depending on who puts the CBAM account number on the customs declaration. If you ship through an agent, settle in writing who holds that role.

A UK exporter selling to an EU customer is usually not the declarant. In practice, though, your EU buyer will ask you for data, and that is where most of the work lands.

EU CBAM reporting requirements

From 2026 imports onward, the authorised declarant submits an annual CBAM declaration through the CBAM Registry by 30 September of the following year. According to the Commission’s Guidance No. 1, the declaration covers:

1. Quantities imported and their origin.

2. Embedded emissions.

3. Verification information, where applicable.

4. The free-allocation adjustment.

5. Any carbon price effectively paid in the third country.

This replaced the transitional period, which ran from 1 October 2023 to 31 December 2025. It required quarterly reports without buying or surrendering certificates.

How embedded emissions are calculated

Importers may use Commission default values or actual emissions. Where actual values are used, the non-EU producer must provide verified emissions data. The basic logic is the same for every sector:

• Measure the direct emissions from producing the good at the installation.

• Add indirect emissions where the rules require them for that product category, such as emissions from the electricity used.

• Divide by the output to get emissions per tonne of product.

• Multiply by the tonnes imported.

Getting this right depends on sound greenhouse gas accounting: system boundaries, emission factors, allocation between co-products and audit trails. Our Emissions and Greenhouse Gas Accounting course covers the foundations that CBAM data builds on.

Default values or actual data?

Defaults let you report without supplier data, but they are a blunt instrument. A producer with a cleaner process has a commercial reason to supply verified actual figures, because those figures describe its own plant rather than an average. Which route is cheaper for you depends on your volumes, your products and how willing your suppliers are to share data. Check the current default values in the Commission’s published guidance before you model costs.

What CBAM costs and when it bites

Authorised declarants buy certificates and surrender the amounts corresponding to their embedded emissions each year. Certificate prices follow quarterly EU ETS auction-price averages in 2026 and weekly averages from 2027.

Two mechanisms reduce the bill:

• Free allocation adjustment. From 2026 to 2033 CBAM coverage grows as EU ETS free allocation is phased out. From 2034, 100% of embedded emissions in covered goods need certificates.

• Carbon price paid abroad. A carbon price already paid during production may be deducted, so you should keep evidence of any levy paid in the country of origin.

The 2027 cash-flow change

From 2027, the EU’s official Q&A says authorised declarants above the threshold must buy, each calendar quarter, certificates for at least 50% of the emissions embedded in covered goods imported since the start of the year. Certificate sales start on 1 February 2027. This turns CBAM from a once-a-year admin task into a recurring treasury item, so finance teams should be involved well before then.

If your business already uses an internal carbon price, you can use it to model CBAM exposure by product line. Our guide to setting and using an internal carbon price shows how, and the Introduction to Carbon Trading course explains the ETS market that sets certificate prices.

The UK CBAM: how it differs

The UK scheme is a separate regime. The government’s guidance says it is scheduled to start on 1 January 2027, initially covering aluminium, cement, fertiliser, hydrogen, and iron and steel. Importers must keep records and may need to register, with registration scheduled to open on 1 January 2028.

The House of Commons Library describes the UK scheme as similar to the EU mechanism but different in timetable and scope. Its aim is to apply equivalent carbon costs to imports and domestic goods.

Note that electricity is not in the UK’s initial list. Always check the official pages for rules that may have been updated since you read this.

For UK businesses the practical message is that you may face both regimes: the EU’s if you export to the bloc, and the UK’s if you import covered goods. The sensible approach is to build one emissions dataset per product and installation that can serve both.

What CBAM means for producers outside the EU and UK

Producers are not the payer, but they carry much of the data burden. The Commission runs a CBAM Registry module for non-EU installation operators, known as O3CI. It lets operators upload and share installation and emissions data with reporting declarants instead of sending it to each one separately. It also provides confidential treatment of business-sensitive data, and declarants can then pull the data into their reports.

This matters especially for exporters in Africa and other emerging markets that supply steel, aluminium, fertiliser or cement to Europe. A producer that can supply verified, installation-level data is easier to buy from, and one that cannot may be priced on default values.

A practical sequence for a non-EU producer:

1. Confirm which of your products fall under covered commodity codes.

2. Map your installations, processes and energy inputs.

3. Set up monitoring for direct and indirect emissions.

4. Arrange verification with an accredited verifier where the rules require it.

5. Share the data with customers, using the Commission’s O3CI module where relevant.

A practical CBAM readiness checklist

• Classify your goods. Match every product to its customs code and confirm whether it is covered.

• Check your volumes. Compare annual imports against the 50-tonne EU threshold, and watch the UK’s registration rules as they approach.

• Decide who is the declarant. Settle roles between you, your agent and your customs broker.

• Request supplier data now. Ask each supplier for installation-level emissions and any carbon price paid.

• Model the cost. Use ETS prices, the free-allocation adjustment and your volumes to estimate exposure.

• Plan the calendar. Annual declaration by 30 September, with quarterly certificate purchases from 2027.

• Join up your reporting. CBAM data should align with your wider disclosures, such as those under CSRD after Omnibus I.

How Exereco can help

CBAM sits where carbon accounting, trade compliance and sustainability reporting meet. Exereco combines news and analysis focused on Europe and Africa with ESG reporting software, advisory and compliance support, training courses and networking events, so you can follow the rules and build the skills in one place.

If you want to understand the climate context behind these rules, start with our SDG 13: Climate Action page, or explore the full range of Exereco’s sustainability resources for businesses and organisations.

FAQ

What is CBAM in simple terms?

CBAM is a carbon charge on selected imports. It makes importers pay for the emissions embedded in goods such as steel, cement, aluminium and fertiliser, so they face a carbon cost comparable to that paid by EU producers. The EU scheme is in its definitive phase, and a UK scheme is scheduled to start on 1 January 2027.

Which sectors does the EU CBAM cover?

The EU covers selected goods in cement, iron and steel, aluminium, fertiliser, electricity and hydrogen. Coverage is set by customs commodity codes, so check the code for your product. The UK’s initial list covers aluminium, cement, fertiliser, hydrogen, and iron and steel.

When is the CBAM reporting deadline?

Under the EU’s definitive regime, the authorised declarant submits an annual declaration through the CBAM Registry by 30 September of the following year. Certificates are surrendered at the same point. From 2027, declarants above the threshold must also buy certificates quarterly.

Does CBAM apply to small importers?

The EU has a single exemption of 50 tonnes per importer per calendar year for iron and steel, aluminium, fertilisers and cement. It does not apply to electricity or hydrogen. Importers above the threshold must become authorised declarants.

Do non-EU producers pay CBAM?

No, the declarant, usually the importer, pays. Producers do need to provide verified emissions data if the importer is to use actual values rather than defaults. The Commission’s O3CI module lets them share that data once with many declarants.

Recommended

• Introduction to Carbon Trading

• Internal Carbon Pricing: How to Set and Use a Carbon Price

• Circular Energy: The EU’s pathway to a circular and carbon neutral future

• Emissions and Greenhouse Gas Accounting