CBAM – Carbon Border Adjustment Mechanism
The CBAM (Carbon Border Adjustment Mechanism) is a tool introduced by the European Union to level the playing field between EU producers and suppliers from outside the EU. It is a key element of the EU’s climate and economic policy, and its implementation is significant for both industrial sectors and environmental protection. A transitional phase will be in effect until the end of 2025 to support the gradual rollout of the program.
CBAM is a carbon border adjustment mechanism and a climate policy tool of the European Union. Its main objective, in line with the Fit for 55 package, is to reduce greenhouse gas emissions and support the EU’s strategy to cut net emissions by at least 55% by 2030 and achieve climate neutrality by 2050.
CBAM operates in close connection with the EU Emissions Trading System (EU ETS) and aims to level the playing field between EU producers and non-EU importers by eliminating carbon leakage.
CBAM is part of the broader EU legislative package known as Fit for 55, which aims to reduce greenhouse gas emissions by 55% by 2030 compared to 1990 levels. The key legal acts regulating the CBAM mechanism are:
- regulation (EU) 2023/956 establishing CBAM,
- the revised directive on the EU ETS (emissions trading system).
What is the CBAM mechanism?
CBAM is a system that imposes additional charges on goods imported into the EU that generate carbon dioxide emissions during production. These charges are set to reflect the costs borne by European companies under the EU ETS.
Under the EU ETS, European producers must acquire emission allowances for each ton of greenhouse gases emitted. These allowances are partly allocated for free and partly purchased through auctions. For non-EU producers, the lack of such burdens creates a competitive advantage and the risk of relocating production to countries with lower environmental standards. CBAM aims to eliminate this gap by requiring importers of high-emission products to pay a fee.
An important aspect of CBAM is its implementation alongside the phase-out of free allowances under the EU ETS. As importers are obliged to purchase CBAM certificates, EU producers will gradually lose their free allowances, ensuring competitive balance. However, the EU’s strict climate regulations may reduce the competitiveness of European companies on international markets.
High emission-related costs resulting from the EU ETS and CBAM may make EU-produced goods less price-competitive compared to products from countries with less stringent environmental standards. According to European Commission analyses, this could lead to around a 7% decline in the export value of goods.
According to assumptions, revenues from the implementation of CBAM will amount to several billion annually. The European Commission plans to distribute the funds collected from the border tax between EU countries and the trade partners most affected by CBAM – that is, third countries. The aim is to promote global efforts to reduce emissions and support the transition to a low-emission economy.
EU ETS - emissions trading system in the European Union
Read articleStages of CBAM implementation
The CBAM mechanism is being introduced in stages to allow companies to adapt to the new requirements:
- Transitional period (1 October 2023 – 31 December 2025)
Importers are required to submit quarterly reports on the emissions embedded in imported goods, but without the obligation to pay fees yet. Failure to comply with the reporting obligation may result in administrative penalties.
- Definitive period (from 1 January 2026)
Between 2026 and 2033, embedded emissions will gradually be subject to CBAM certificate purchase obligations. At the same time, free allowances under the EU ETS will be phased out. From 2034, 100% of emissions related to CBAM-covered goods will require CBAM certificate purchases. The free allowance system in the EU ETS will be completely abolished.
Who is required to report under CBAM?
CBAM covers sectors with high emission intensity that are most exposed to the risk of carbon leakage. In the initial phase, these include:
- cement,
- iron and steel,
- aluminium,
- fertilisers,
- hydrogen,
- electricity.
What must be reported under CBAM?
Reporting under CBAM is a key element of its operation. During the transitional period, companies must provide data on:
- embedded emissions, i.e. the amount of greenhouse gases generated during the production of imported goods,
- domestic carbon price – if the exporting country has its own emission pricing system, importers may deduct these costs from their CBAM obligations.
After the transitional period ends, emission reporting will be supplemented with the obligation to surrender CBAM certificates.
Polish companies importing CBAM-covered goods are required to report embedded emissions in imported products in detail. Reports must include data on direct emissions resulting from production processes and indirect emissions, such as those associated with electricity use. Reports should also provide information on the quantity and type of imported goods, their country of origin, and the functioning of an emission pricing system in that country.
During the transitional period, lasting until the end of 2025, companies are required to submit quarterly reports without having to pay fees, but from 2026 they will have to surrender CBAM certificates reflecting the emission costs embedded in imported goods.
CBAM and industrial companies
For industrial companies, CBAM means the need to thoroughly analyse their supply chains and production-related emissions. To operate effectively in this new environment, companies must:
- invest in more efficient production processes,
- conduct environmental audits to better understand their carbon footprint,
- consider relocating part of their production to the EU to avoid CBAM-related charges.
Benefits of CBAM
- level playing field – CBAM eliminates the price advantage of non-EU producers who do not bear emission reduction costs,
- global emissions reduction – the mechanism encourages other countries to tighten climate regulations so their products remain competitive on the EU market,
- innovation stimulus – companies motivated to reduce emissions invest in new technologies, accelerating industrial transformation,
- support for EU climate goals – CBAM is one of the tools supporting the achievement of climate neutrality by 2050.
Challenges related to CBAM
- costs for companies – importers must pay additional fees, which may increase the final prices of products,
- reporting complexity – the system requires detailed monitoring of emissions across the supply chain, resulting in additional administrative burdens,
- risk of trade retaliation – some non-EU countries may view CBAM as a trade barrier and introduce retaliatory mechanisms.
Summary
CBAM is a breakthrough mechanism aimed at climate protection and ensuring fair competition in international markets. Its introduction poses challenges for importers, who must adapt to new reporting requirements and bear additional emission-related costs. At the same time, the mechanism creates an opportunity to globally raise climate ambition and accelerate the transition toward a low-emission economy. The full implementation of CBAM in 2026 will be a milestone in the EU’s path to climate neutrality and will undoubtedly impact the future of industry both in Europe and globally.
