EU CBAM reporting reaffirms that climate change has started impacting business and economy significantly across the world. Governments and people at all levels have been trying to reduce and prevent carbon emissions to push the global business community towards decarbonisation. With this vision in mind, the European Union Commission introduced the Carbon Border Adjustment Mechanism, which is in the mandatory reporting phase from January 2026.
In this blog, we will understand everything about CBAM.
What is Carbon Border Adjustment Mechanism?
The EU Carbon Border Adjustment Mechanism is a climate tool to facilitate equal carbon pricing for all carbon-intensive products entering the European Union market. The CBAM is a kind of carbon tax or carbon import tariff imposed on goods made of Iron and Steel, Aluminium, Cement, Fertiliser, Hydrogen and Electricity.
As the pilot learning period for CBAM ended in December, 2025 and mandatory CBAM reporting began from January, 2026, the imports and suppliers must submit their accurate CBAM report on time to avoid penalty. Moreover, importers who are required to submit the embedded emissions report for their imported goods will also have to pay ‘CBAM certificate prices’ from the start of 2027. The price of these CBAM certificates or CBAM tax will depend on the amount of emissions in their products. And the pricing will be decided as per the EU ETS quarterly and weekly average auction rates.
Why was CBAM introduced?
- Prevent carbon-leakage: CBAM puts a fair price on the products’ carbon emissions that are manufactured outside the EU and are meant to enter the EU market for free circulation. In a nutshell, the CBAM’s primary aim is to prevent carbon-leakage, a situation when EU companies start shifting their production units to countries with lax climate policies to bypass the EU laws on climate.
- Create trade parity and level-playing field: Another reason for CBAM’s roll out is to create a level playing field for all traders in the EU market. As the EU has its own Emissions Trading System (ETS) to limit the carbon-intensive productions, the EU affiliated companies felt financial and business pressures.
This is because companies from non-European nations with loose and no carbon pricing mechanisms started to flood the EU market at far cheaper rates, resulting in product pricing disparity and imbalance trade. Evidently, this would have put the EU companies at a disadvantageous position. In order to eliminate this situation, the EU introduced the CBAM which is a replica of EU ETS.
- Push for global decarbonisation : The European Union commission introduced the CBAM to push for global decarbonisation and meet its own target of making the EU carbon-neutral by 2050, under its ‘Ft for 55’ initiative.
Sectors covered under CBAM
At present, the CBAM is applicable to six sectors and products that pose the greatest risk of carbon-leakage and are considered to be the most carbon-intensive: Iron and Steel, Aluminium, Cement, Fertilisers, Hydrogen, and Electricity. However, from 2030 onwards, more sectors and products under the EU ETS will most likely be covered by CBAM.
Types of Carbon Emissions needed under CBAM
There are many types of carbon emissions covered under the CBAM reporting.
Direct Emissions: Any carbon emissions from the facility and onsite productions processes including fuel combustions are covered under the direct emissions and required under CBAM.
Indirect Emissions: CBAM’s indirect emissions cover emissions from electricity used in production — roughly Scope 2 (though actual electricity generation may be offsite).
Specific Embedded Emissions: Specific embedded emissions means specific direct emissions along with specific indirect emissions for a particular product that comes under the CBAM.
Precursors Details: Precursors are one CBAM product used to make another CBAM product after proper production processes. Under the CBAM regulation, precursors’ details or third party vendors’ details are also required.
CBAM is being implemented in two phases: Transitional Phase and Definitive Phase.
Transitional Phase (October 1, 2023, to December 31, 2025): This was also known as pilot learning phase for imports and exporters to understand everything about CBAM and how to implement it. The CBAM learning period allowed all CBAM impacted industries and companies to prepare themselves for the mandatory CBAM reporting phase from January 2026. Submission of quarterly CBAM reports was the only mandatory requirement by EU importers. There was some leniency allowed during this phase until December, 2025, as CBAM was very new and highly technical regulation for all companies and suppliers.
Definitive Phase (Mandatory CBAM reporting from January 2026): After the businesses started realising CBAM reality, they have been mandated to submit their CBAM report every quarter. During the mandatory reporting phase of CBAM, importers and exporters will not be able to do business with Europe without submitting emissions data. However, if the importer can prove that a Carbon price was paid during the production of the imported products in the country of origin, then the amount equivalent to it can be deducted.
Things that change from January 2026:
- Importers must submit a quarterly CBAM report.
- Carbon tax will be calculated taking 2026 as the base year.
- EU buyers must register with the National Competent Authorities.
- Virtual and physical data verification by EU-approved verifiers.
- No use of default values, only accurate specific emissions will be acceptable.
- Penalties for late submission of CBAM report.
- Inaccurate CBAM reporting will invite financial penalties.
- No shipment will be allowed entry in the EU without a proper CBAM report.
Things that change from January 2027:
- CBAM tax payment.
- Higher emissions will lead to higher CBAM tax.
- No CBAM will mean absolutely no business with the EU.
Who will be impacted by CBAM?
CBAM is going to impact any company that exports products made of Iron and Steel, Aluminium, and Cement. For example, a Brazilian company exporting Cement to Europe, India and China exporting Iron and Steel to Europe or Istanbul sending its steel shipment to Europe must submit their CBAM report for uninterrupted access to the market. It does not matter where your company is located if you export similar products either directly or indirectly to Europe.
How will CBAM tax be decided?
As per the latest information, CBAM tax will be calculated for quarterly reports on quarterly average auction price of EU ETS until the end of 2026. Moreover, from 2027 when the CBAM tax will be collected from importers, the EU ETS weekly average auction price will be used to determine the CBAM Certificate Prices. These are subject to changes.
Key exemptions under CBAM
There are some key exceptions under the CBAM for importers and exporters:
- EU buyers who import less than 50 tons of CBAM goods don’t have to submit the CBAM report until the end of 2025. However, this does not apply to suppliers.
- All EU imports from countries like Iceland, Norway, Liechtenstein, Switzerland are not mandated to submit CBAM reports as they are linked with the EU ETS.
- If the importer can prove that it has paid any carbon price for the imported goods in the country of origin, then that amount can be deducted or readjusted in the CBAM report.
Latest changes under the CBAM
- CBAM Certificate Price Calculation As Per EU ETS Auction Price: Suggests Leaked CBAM Document
As CBAM reporting becomes mandatory from January, 2026, European Union Commission’s leaked CBAM documents suggest stricter rules will be applicable soon. The draft reveals that the CBAM certificate price will be calculated with the help of prices from all auctions under the EU Emissions Trading System (ETS). The regulations also suggest the CBAM price will be calculated on a quarterly basis for 2026 and a weekly basis from 2027 onwards.
Notably, the CBAM tax will also be applicable from 2027, but the tariff will be decided and imposed on emissions data from January 2026.Meanwhile, the fixed CBAM price will be published soon after the Commission has studied all the relevant information. The leaked draft says, “a single price will be published for all.” The quarterly CBAM prices will be available to authorised declarants in the CBAM registry from the third quarter of 2026. Moreover, the EU will release the CBAM prices starting the first working day from 2027.
- Emissions Data Verification to Become Stricter from January 2026?
The CBAM draft reveals the verification of emissions data will become stricter from January 2026. There will be two ways to conduct CBAM data verification: virtual and physical. Every company producing CBAM reports will have to ensure physical visits by EU-accredited agencies and individuals for data verification from January 2026. However, from January 2027, the verifiers may replace the physical verification with a virtual visit. They could also waive off the verification if data integrity is established and during when they have no doubts regarding data hygiene and accuracy.
- Materiality Threshold Published for CBAM Reporting: Leaked Draft
A materiality threshold is a benchmark used in accounting and auditing to determine if an omission or misstatement in financial information is significant enough to influence the economic decisions of a reasonable user (like an investor or creditor). The draft rules have introduced the materiality threshold of 5%. This means the level of errors that can be tolerated under varying CBAM compliance circumstances is 5 per cent only.
Challenges under EU CBAM
The EU CBAM is a very complex and data-hungry regulation that requires systematic changes and adoption of procedures and frameworks to ensure CBAM compliance. Here is a look at some major challenges in CBAM reporting:
Accurate data collection: CBAM is very complex regulation and requires involvement of multiple stakeholders for data collection. There are different kinds of data needed under the CBAM compliance because of different production processes and supply chain challenges for raw material procurement.
Accurate calculation: Accurate calculation is another major concern for importers and suppliers. This could impact the company financially as wrong calculations could lead to inflated prices and a disproportionate amount of CBAM tax. And manual methods are highly prone to errors and miscalculations. Hence, an effective tool is needed to ensure accurate calculation.
Data auditability: The EU is also going to verify all the emissions data submitted under the CBAM to effectively prevent attempts of carbon-leakage. Therefore, carbon emissions data auditability must be maintained. A CBAM reporting software like CleanCarbon.ai has all the advanced features to maintain the data traceability and auditability.
How CleanCarbon.ai is helping suppliers in CBAM compliance?
The EU CBAM, as we now know, is highly technical and data-consuming regulation. And it involves carbon tax on the basis of increasing embedded emissions in the imports. Hence, we need a software which has features to accurately gather carbon emissions data, analyse and predict the carbon tax with exact calculations to avoid greater financial burden on the company.
CleanCarbon.ai is CBAM-first consultancy platform that ensures end-to-end CBAM compliance. It has special features in its CBAM tool that allows live emissions tracking and studying them to facilitate EU-approved data verification, maintaining data auditability and traceability.
Will CBAM cover all categories under EU ETS?
Currently, CBAM covers six sectors like Iron and steel, Aluminium, Cement, Fertilisers, Hydrogen and Electricity.
Even if my product’s HSN code does not fall under CBAM, do I need to submit a CBAM report?
Yes, even if products don’t fall under the CBAM HSN codes, you will have to submit the CBAM report if your imported or exported goods carry components and elements from Iron and Steel, Aluminium, and Cement.
Who will decide CBAM tax? And how?
Currently, CBAM tax will be determined on the basis of EU ETS average auction prices until the Commission publishes exact thresholds for CBAM specific imports.
Is indirect emissions still covered under the CBAM?
Indirect emissions of the reporting company are covered under the CBAM but not for the precursors. Reporting indirect emissions of precursors is optional and not required. Only indirect emissions of the final product process must be reported.
