What is the EU Carbon Border Adjustment Mechanism (CBAM)?

The EU Carbon Border Adjustment Mechanism (CBAM) is a carbon tariff on imports of certain carbon-intensive goods into the EU — designed to prevent 'carbon leakage' (where EU industries shift production to countries with weaker carbon pricing, or EU producers lose market share to cheaper, more carbon-intensive imports). CBAM entered its transitional phase on 1 October 2023 (reporting only, no financial obligation). Full financial CBAM begins on 1 January 2026, with importers purchasing CBAM certificates at the EU ETS carbon price. Initially covering: steel and iron, cement, aluminium, fertilisers, electricity, and hydrogen. CBAM certificate cost = embedded emissions in the imported product × (EU ETS price − carbon price already paid in country of origin). Countries with equivalent carbon pricing (e.g. a domestic ETS) receive credit, reducing the CBAM charge. CBAM is considered the world's first significant carbon border tariff mechanism.

Which products are covered by CBAM?

CBAM covers six sectors in its initial phase (2026): (1) Steel and iron — including pig iron, hot-rolled flat products, cold-rolled flat products, coated steel, tubes, and pipes; (2) Cement — clinker and various cement types; (3) Aluminium — unwrought aluminium, aluminium bars, wires, plates, and sheets; (4) Fertilisers — nitrogenous fertilisers (ammonia, urea, ammonium nitrate, mixed fertilisers) where Scope 1 process emissions are significant; (5) Electricity — imported electricity from non-EU countries; (6) Hydrogen — green and grey hydrogen. A review process was mandated to assess extending CBAM to further sectors (organic chemicals, polymers, other goods) after the initial phase. The sectors were chosen because they are both carbon-intensive (high embedded emissions) and trade-exposed (subject to competition from imports).

How is the CBAM certificate price calculated?

CBAM certificate cost is calculated as: Embedded emissions (tCO2e per tonne of product) × (EU ETS weekly average price − carbon price paid in country of production). Example: importing 1,000 tonnes of steel with embedded emissions of 1.8 tCO2/tonne, at EU ETS price €65/tCO2, and origin country carbon price €0/tCO2: CBAM charge = 1,800 tCO2 × €65 = €117,000 (approximately 6.5% additional import cost at ~€65/tonne steel value of ~€700–900/t). If the exporting country has a carbon price of €30/tCO2, the CBAM charge = 1,800 × (€65 − €30) = 1,800 × €35 = €63,000 — reflecting only the gap. Embedded emissions must be declared by importers using verified data from the production facility; default values (conservative sector averages) apply if verified data unavailable.

Carbon Border Adjustment Mechanism (CBAM) Guide

Published 1 October 2026 · Updated 22 October 2026

The EU's Carbon Border Adjustment Mechanism (CBAM) is the world's first carbon border tariff — a policy designed to level the playing field between EU industries paying carbon prices under the EU ETS and importers from countries with no or lower carbon pricing. CBAM financial charges began in 2026, making it an active cost factor for importers of steel, cement, aluminium, fertilisers, hydrogen, and electricity into the EU.

For the EU ETS carbon market that drives CBAM certificate prices, see our carbon credit glossary entry. For how CBAM affects the energy transition agenda, see our EU Energy Week 2026. For CBAM's impact on green hydrogen trade economics, see our Renewable Energy India Expo 2027.

What is CBAM and why was it created?

CBAM addresses two problems created by unilateral carbon pricing:

Carbon leakage: If EU steelmakers pay €65/tCO2 under the ETS but Chinese steelmakers pay nothing, EU steel becomes uncompetitive, production shifts to China, and global emissions may increase (or stay flat despite EU policy)
Competitiveness loss: EU industry faces higher costs than non-EU competitors; CBAM equalises the carbon cost for goods competing in EU markets regardless of origin

CBAM creates an incentive for exporting countries to adopt equivalent carbon pricing — if they impose a domestic carbon price equal to the EU ETS, CBAM charges are reduced to zero. This is intended to "export" carbon pricing globally through trade linkages.

CBAM-covered sectors and embedded emissions

Sector	Typical embedded emissions	2026 EU import volume (approx.)	Key exporting countries affected
Steel (flat products)	~1.5–2.5 tCO2/t	~20–25 Mt/year	Ukraine, India, Turkey, China, South Korea
Cement (clinker)	~0.7–0.9 tCO2/t	~3–5 Mt/year	Turkey, Egypt, Vietnam
Aluminium	~4–8 tCO2/t (primary)	~3–4 Mt/year	Russia, Turkey, Norway, Middle East
Fertilisers (N-based)	~2–5 tCO2/t product	~10–15 Mt/year	Russia, Egypt, USA, Trinidad
Electricity	Varies by generation mix	~50–100 TWh/year	Norway (hydro), UK, Switzerland, Ukraine
Hydrogen	~10–15 tCO2/tH2 (grey)	Small volume (emerging)	North Africa, Middle East (future)

CBAM certificate calculation

The CBAM financial obligation works as follows:

Step 1 — Declare embedded emissions: Importers must declare the CO2 embedded in goods per tonne of product using verified data from production facilities (or EU default values)
Step 2 — Determine carbon price credit: Any carbon price already paid in the country of origin (domestic ETS, carbon tax) reduces the CBAM obligation proportionally
Step 3 — Purchase CBAM certificates: Certificates purchased at the weekly average EU ETS carbon price; surrendered annually
Formula: CBAM cost = (Embedded emissions × (EU ETS price − origin carbon price)) × tonnes imported

At EU ETS €65/tCO2 and typical steel embedded emissions of 1.8 tCO2/t, CBAM adds approximately €117/tonne of steel for imports from countries with no carbon pricing — approximately 15% at a steel price of €750/t.

CBAM phase-in timeline

Phase	Period	Obligation
Transitional (reporting only)	Oct 2023 – Dec 2025	Quarterly embedded emissions reporting; no financial obligation; data collection period
Full financial CBAM begins	1 Jan 2026	CBAM certificates must be purchased; EU ETS free allowances phased out for covered sectors
ETS free allowances phase-out	2026–2034	Free ETS allowances for steel, cement, aluminium reduced by ~10%/year; CBAM obligation rises in parallel
Full CBAM + no free allowances	2034	Complete removal of free ETS allowances for CBAM sectors; full carbon cost internalised
Sector expansion review	2025–2026	European Commission assessment of extending to organic chemicals, polymers, other goods

Trade and industry impacts

CBAM is already reshaping global trade flows and industrial investment decisions:

Green steel premium: Low-carbon steel (e.g. from hydrogen-DRI or scrap EAF) can enter the EU with near-zero CBAM charges — creating a commercial advantage; SSAB (Sweden), H2 Green Steel, and others are targeting EU markets with low-carbon steel
Trade diversion: High-emission exporters may redirect EU-bound goods to other markets without carbon pricing; global emissions impact is contested
Fertiliser vulnerability: EU farmers face higher fertiliser costs if imports from Russia/Egypt face large CBAM charges; political sensitivity is high
Aluminium complexity: Aluminium embedded emissions vary hugely by energy source; Norwegian hydro aluminium (~2–3 tCO2/t) faces minimal CBAM; coal-power aluminium (~15+ tCO2/t) faces major charges
WTO compatibility: Several trading partners (India, China, USA) have raised WTO challenges to CBAM; the EU argues it is consistent with WTO non-discrimination principles; legal outcome uncertain

CBAM and the global "race to carbon pricing"
CBAM's strategic design — reducing charges where origin countries have equivalent carbon pricing — creates an incentive for exporting countries to introduce domestic carbon pricing rather than face the EU tariff. UK CBAM (launching ~2027) mirrors the EU approach and reinforces the signal. Canada's Output-Based Pricing System (OBPS), Korea ETS, and Singapore's carbon tax may qualify for CBAM credits. China's national ETS — if its carbon price approaches EU ETS levels — would reduce China's CBAM burden significantly. Critics argue CBAM primarily benefits EU industry rather than driving global decarbonisation; supporters argue it is the first mechanism that makes the EU's carbon price "tradeable" internationally. For the carbon market context, see our carbon credit glossary entry.

Frequently asked questions

What is the EU Carbon Border Adjustment Mechanism (CBAM)? CBAM is the EU's carbon border tariff — importers of steel, cement, aluminium, fertilisers, hydrogen, and electricity must purchase CBAM certificates at the EU ETS carbon price (currently ~€60–70/tCO2) for the embedded emissions in their imports. Transitional reporting: Oct 2023–Dec 2025. Full financial obligation: from 1 Jan 2026. Countries with equivalent domestic carbon pricing receive credit, reducing the charge. Designed to prevent carbon leakage and level the playing field for EU industries paying ETS costs.: CBAM is the EU's carbon border tariff — importers of steel, cement, aluminium, fertilisers, hydrogen, and electricity must purchase CBAM certificates at the EU ETS carbon price (currently ~€60–70/tCO2) for the embedded emissions in their imports. Transitional reporting: Oct 2023–Dec 2025. Full financial obligation: from 1 Jan 2026. Countries with equivalent domestic carbon pricing receive credit, reducing the charge. Designed to prevent carbon leakage and level the playing field for EU industries paying ETS costs.
Which products are covered by CBAM? Initial CBAM sectors (from 2026): steel and iron, cement, aluminium, nitrogenous fertilisers, electricity, and hydrogen. Key exporting countries affected: India, Turkey, Ukraine, China (steel); Russia, Egypt (fertilisers); Russia, Middle East (aluminium); North Africa (future hydrogen). A review will assess extending CBAM to organic chemicals and polymers. Aviation and shipping fuels are covered separately under EU ETS/FuelEU.: Initial CBAM sectors (from 2026): steel and iron, cement, aluminium, nitrogenous fertilisers, electricity, and hydrogen. Key exporting countries affected: India, Turkey, Ukraine, China (steel); Russia, Egypt (fertilisers); Russia, Middle East (aluminium); North Africa (future hydrogen). A review will assess extending CBAM to organic chemicals and polymers. Aviation and shipping fuels are covered separately under EU ETS/FuelEU.
How is the CBAM certificate price calculated? CBAM cost = embedded emissions (tCO2/tonne product) × (EU ETS price − origin country carbon price) × tonnes imported. Example: 1,000t of steel, 1.8 tCO2/t embedded, EU ETS €65/tCO2, origin carbon price €0 → CBAM charge = 1,800 tCO2 × €65 = €117,000 (~€117/tonne steel; ~15% tariff at €750/t steel price). If origin country has €30/tCO2 carbon price, charge falls to €63,000.: CBAM cost = embedded emissions (tCO2/tonne product) × (EU ETS price − origin country carbon price) × tonnes imported. Example: 1,000t of steel, 1.8 tCO2/t embedded, EU ETS €65/tCO2, origin carbon price €0 → CBAM charge = 1,800 tCO2 × €65 = €117,000 (~€117/tonne steel; ~15% tariff at €750/t steel price). If origin country has €30/tCO2 carbon price, charge falls to €63,000.