The Carbon Border Adjustment Mechanism (CBAM) is a important initiative of the European Union. The latter has set itself ambitious climate change targets when compared to many other parts of the world. It has committed to becoming carbon neutral by 2050 to counteract climate change. But climate protection costs money. Measures to reduce greenhouse gas emissions require high-level investments from companies within the EU. For every tonne of CO2 emitted, they must buy CO2 emission allowances under the EU Emissions Trading Scheme. It is easy to imagine the consequences for European industry: Products become more expensive – a competitive disadvantage when compared to goods from countries that are less committed to climate protection. The logical consequence is the threat of companies relocating to countries outside the EU.
This is where the Carbon Border Adjustment Mechanism (CBAM) comes into play – the much-publicised CO2 pricing for imported goods. Under this system, the EU imposes a CO2 levy on the import of certain goods originating from less climate-friendly countries. The Federal Environment Agency puts it like this in a nutshell: “The CBAM aims to ensure that the same carbon price is paid for greenhouse gas emissions from certain imported goods as in the European Emissions Trading Scheme.” The EU has another hope in CBAM: It could encourage companies both inside and outside the EU to decarbonise.
Not all sectors are yet covered by the CBAM carbon offset system. Currently, the mechanism applies to direct production-related (grey) emissions from the cement, iron and steel, fertiliser, aluminium, hydrogen and electricity industries. For electricity, cement and fertilisers, indirect emissions must also be recorded. The EU is considering the extension to other commodity groups, such as polymers and organic chemicals, by 2026.
CBAM is already underway, in October 2023. This marks the start of a transition period without financial obligations and with simplified reporting requirements. From 2026, importers will have to acquire and submit CBAM certificates corresponding to the grey emissions of the imported goods. This cannot be done without a certain amount of bureaucracy: Importers will need a CBAM declarant authorisation to import CBAM goods into the EU from 1 January 2026. They must apply to the EU for this authorisation.
The basis for approval is the CBAM declaration, in which importers present their greenhouse gas emissions. The statement includes:
- Total quantity of each type of goods imported in the past year in tonnes and for electricity in megawatt hours (MWh).
- The total grey emissions of these goods in tonnes of CO2 emissions per tonne of goods and for electricity in tonnes of CO2e emissions per MWh generated.
- Indication of the CO2 price paid in the country of origin on grey emissions related to the imported quantity of goods. This price is credited to the CBAM certificates.
- A copy of the test reports issued by accredited examiners.
Each CBAM importer must have applied for approval as an authorised CBAM declarant by 31 December 2025. Non-approved CBAM applicants are excluded from importing their goods into the EU. From 2027 onwards, companies will have to submit a CBAM declaration, for the first time by 31 May 2027. This includes the data of the previous calendar year.