This article explains how CBAM is changing the relationship between EU importers and non-EU producers through stricter emissions reporting, verification requirements, carbon costs, and supply chain compliance pressures. It also highlights the financial risks, trade challenges, and collaboration needed for businesses to remain competitive in the EU market.
Why CBAM Is Straining the Relationship Between Producers and Importers
For decades, the commercial relationship between producers and importers was governed by a relatively straightforward set of terms: price, quality, delivery, and payment. Sustainability credentials were a growing consideration, but rarely a deal-breaker. The EU’s Carbon Border Adjustment Mechanism (CBAM) has changed all of that. Since entering its definitive phase on 1 January 2026, CBAM has quietly but powerfully reshaped the dynamics between non-EU producers and the EU importers who source from them introducing a layer of dependency, friction, and financial exposure that neither party was fully prepared for.
This blog explores why CBAM for producers and CBAM for importers are two very different experiences, and why the gap between those experiences is now putting long-standing commercial relationships under real pressure. For those navigating this, understanding CBAM Reporting for Indian Exporters is no longer optional; it is critical for survival.
A Mechanism Designed for Importers, Powered by Producers
To understand the tension, you first need to know an important difference in the CBAM system. The legal responsibility is all on the EU importer. The importer, or their authorized customs agent, has to register as an approved CBAM declarant, handle CBAM Reporting & Compliance, buy certificates, and pay the carbon costs. Non-EU producers do not have any direct legal responsibility under EU law
However, here’s where the business situation is quite different from the legal situation. The EU importer needs information that only the non-EU producer has, such as the greenhouse gas emissions in the products they make. If the producer doesn’t provide accurate and verifiable emissions data for each installation, the importer has to rely on the EU’s conservative default values, which isn’t a good option.
The default values are meant to be tough. They are set at the highest emission levels recorded for a product and country. In 2026, there’s an extra 10% charge, which increases to 20% in 2027 and 30% in 2028 and later. Using a CBAM Tax Calculator reveals that for goods that produce a lot of carbon, like steel, cement, aluminium, and fertilisers, the cost difference between using real emissions data and these default values can be significant, costing large importers hundreds of thousands of euros each year.
In this environment, the producer who cannot or will not provide compliant emissions data is not merely an administrative inconvenience. They are a financial liability. This highlights the significant CBAM Reporting Impacts on Businesses that fail to digitize their environmental footprint
The Data Burden That Falls on Producers
For CBAM for producers, the demands are significant and they arrive without any legal mandate to comply. Non-EU producers must calculate the embedded greenhouse gas emissions in their products using the EU’s prescribed methodology, which distinguishes between direct and indirect emissions, traces emissions from upstream precursors, and requires data at the installation level rather than at a company or national level.
This level of detail is a real challenge for many manufacturers outside the EU. In countries without carbon monitoring systems, tracking and recording emissions for each product might need new internal systems, staff training, and specialized CBAM Reporting Tools. While big multinational companies are handling this more easily, smaller producers in developing markets have a much harder time.
From 2026, if an EU importer uses real emissions data instead of default values, this data must be checked by an EU-approved third-party verifier. This means producers have to gather the data in a way that can be independently checked, including an on-site audit in the first year of verification. The verifier uses a 5% materiality threshold. If the verification fails or is done too late for the importer’s deadline, the importer will automatically use default values.
The result is that producers who want to remain competitive in the EU market must effectively operate to a standard of environmental reporting that exceeds what is required of them by any domestic law. That is a profound shift in the expectations placed on a trading partner.
The Importer Caught Between Compliance and Supplier Loyalty
For CBAM for importers, the mechanism has introduced a new and uncomfortable calculation into every procurement decision. An importer sourcing steel from two suppliers one able to provide verified emissions data, one unable now has a direct financial incentive to favour the compliant supplier, regardless of other factors like price, relationship history, or geographic proximity.
This dynamic is already reshaping supply chain decisions. EU importers are inserting data-sharing clauses into commercial contracts, demanding that suppliers use reliable CBAM Resources to provide emissions reports as a condition of continuing business. As one trade expert put it plainly, high-quality emissions data has become a commercial requirement, not a regulatory nicety.
The problem is that suppliers particularly long-standing partners in markets with limited carbon infrastructure may be unable to meet these standards quickly, regardless of their willingness. A steel mill that has supplied a European manufacturer for fifteen years does not instantly acquire the systems and expertise to deliver installation-level emissions data verified to EU standards simply because a new regulation demands it. There is a real human cost to these transitions: relationships built over years can be severed not because the producer’s goods are inferior, but because their reporting infrastructure lags behind an evolving European regulatory standard.
For many importers, this creates genuine conflict. Replacing a trusted, cost-effective supplier with an unfamiliar alternative carries its own commercial risks supply chain disruption, quality uncertainty, renegotiated pricing. But the financial penalty for working with a non-compliant supplier is escalating year by year, and the pressure to act is intensifying.
Future of Carbon-Intensive Industries
The Future of Carbon-Intensive Industries depends heavily on how quickly they can adapt to these transparent reporting standards. A steel mill that has supplied a European manufacturer for fifteen years does not instantly acquire the systems to deliver installation-level emissions data. There is a real human cost to these transitions: relationships built over years can be severed not because the producer’s goods are inferior, but because their reporting infrastructure lags behind.
Cost Allocation: Who Really Pays?
A central point of friction in the producer-importer relationship is the question of who bears the cost of CBAM compliance. Legally, that cost falls on the importer through the certificate purchase obligation. Commercially, however, both parties are discovering that the question is far more negotiable and contested than they might have expected.
Some EU importers are attempting to pass CBAM costs downstream, negotiating lower purchase prices from non-EU suppliers to offset the certificate expenditure they now face. This puts producers particularly in lower-income countries with fewer alternative markets under additional price pressure at precisely the moment when they are also being asked to invest in new emissions tracking and reporting infrastructure. The cumulative burden is not trivial.
Other importers are absorbing CBAM costs internally, at least initially, and building them into product pricing for their own customers. This works in sectors where competitive pressure allows for it, but in highly commoditised markets bulk steel, primary aluminium, commodity fertilisers passing carbon costs through the value chain is far from guaranteed.
The CBAM phase-in factor provides some short-term relief. The free allocation adjustment means that certificate obligations in 2026 cover only a portion of total embedded emissions, with the share rising progressively through to 100% by 2034. But as the phase-in increases and EU ETS allowance prices currently ranging between €70 and €100 per tonne of CO₂ continue to affect certificate costs, the financial stakes of this cost allocation debate will grow considerably.
When Producers Are Left Behind: The Risk to Developing Markets
The impact of CBAM on producers is not evenly distributed. The countries most exposed to CBAM including major exporters of steel, aluminium, and fertilisers such as India, Turkey, Ukraine, and countries across Africa are also among those with the least developed carbon monitoring infrastructure. The EU’s own analysis noted that emissions-efficient exporters are in a stronger position to sustain pricing and EU market access, while higher-emission firms often concentrated in lower-income countries face early signs of commercial pressure.
The Institute for European Environmental Policy has highlighted that SMEs in these markets are being indirectly impacted through their role in complex supply chains. As EU importers push compliance costs downstream, smaller producers lacking data management or decarbonisation capacity face financial strain and potential exclusion from EU value chains altogether. For these businesses, CBAM is not an administrative challenge, it is an existential market access question.
This dynamic risks concentrating EU trade toward producers in countries with more advanced carbon pricing and monitoring systems, potentially at the expense of producers in markets that the EU has historically sought to engage through trade policy. Whether this is an unintended consequence or an acceptable cost of the mechanism’s environmental ambition is a live debate but for the importers maintaining those supply chains, it creates real decisions with real consequences.
The Path Forward: Collaboration, Not Confrontation
Despite the friction, the most effective response to CBAM’s demands is not adversarial. Importers who engage proactively with their supply chains, helping producers understand the EU’s methodology, sharing guidance on data collection, and building CBAM literacy across their supplier base are better positioned than those who simply issue demands and wait for responses.
Several practical approaches are emerging. Importers are beginning to include CBAM support in supplier onboarding programmes, treating emissions data readiness as a procurement standard alongside quality certifications and delivery reliability. Joint investment in emissions monitoring systems where the importer contributes resources in exchange for reliable data is another model gaining traction in industries where supplier relationships are strategic rather than purely transactional.
Producers, for their part, who invest in building EU-compliant emissions reporting capabilities are acquiring a durable competitive advantage. An EU importer who has two equally priced suppliers one providing verified actuals, one relying on penalised defaults will consistently prefer the former. In this sense, CBAM for producers is as much a market opportunity as it is a compliance burden.
Penalties Make Delay Costly for Both Sides
One factor that should concentrate minds on both sides is the enforcement regime. For EU importers, failing to surrender sufficient CBAM certificates results in a penalty of €100 per tonne of CO₂ equivalent, adjusted for inflation, a figure that can compound rapidly for large-volume importers of carbon-intensive goods. Persistent non-compliance can result in a ban from importing CBAM goods into the EU Single Market entirely.
These penalties create a hard incentive for importers to resolve data gaps in their supply chains. Suppliers who leave importers exposed to that risk even inadvertently will find themselves replaced. The relationship strain, in the end, is not driven by bad faith on either side. It is the structural consequence of a mechanism that places legal accountability in one place and the practical ability to discharge that accountability in another.
Conclusion
CBAM is achieving its policy goal of forcing carbon costs into trade decisions, but it is doing so by creating a new kind of dependency between EU importers and the non-EU producers they rely on. CBAM for producers demands data transparency and emissions accounting capabilities that many are still building. CBAM for importers demands accurate, verified data that only producers can supply, under penalty structures that make the status quo untenable.
The relationships under greatest strain are those where neither side has yet invested in the systems, communication, and mutual support needed to navigate these obligations together. The relationships that will survive and strengthen are those where importer and producer approach CBAM not as a source of blame, but as a shared compliance challenge requiring shared solutions.
The mechanism is live. The financial stakes are real and rising. For both sides, the window to build productive, compliant supply chain partnerships is narrowing.
Frequently Asked Questions
What are the main CBAM obligations for EU importers in the definitive phase?
Starting 1 January 2026, EU importers bringing in over 50 tonnes of goods like steel, aluminium, and cement must have CBAM declarant status. They need to report the greenhouse gas emissions of these imports and buy CBAM certificates. The first report for 2026 is due by 30 September 2027. Certificate prices are linked to EU ETS rates, which have been between €70 and €100 per tonne of CO₂, increasing costs for importers.
Are non-EU producers legally required to provide emissions data under CBAM?
Not directly. CBAM does not create legal duties for producers under EU lawthe legal responsibility is on the EU importer. But, non-EU producers have control over the emissions data that EU importers need for compliance. If a producer can’t give accurate and verified emissions data, the importer has to use the EU’s default values, which have a penalty of 10% in 2026, increasing to 30% from 2028 onwards. Commercially, this means producers who don’t or can’t provide the right data might lose EU customers to those who can. The legal duty is with the importer, but the practical and business pressure is on the producer.
What happens when an importer has to use default values instead of actual emissions data?
If an importer cannot get verified emissions data from their supplier, they have to use the default values set by the EU for the product and its country of origin. These default values are purposely set high based on the highest emission levels recorded among countries with good data for that product. In 2026, these defaults will have an extra charge of 10%, which will go up to 20% in 2027 and 30% from 2028. This can cost a lot. For importers who bring in large amounts of carbon-heavy products, the cost difference between using real verified emissions and these default values can add up to hundreds of thousands of euros each year. This gap will get bigger as the extra charge increases and the CBAM phase-in factor reaches 100% by 2034.
Can importers pass CBAM costs on to their non-EU suppliers through lower purchase prices?
Importers can try to negotiate lower prices from suppliers to balance out the costs of CBAM certificates. Whether this is possible depends a lot on market conditions, the negotiating power of each side, and if there are other supply options. In markets with common products like bulk steel, primary aluminium, and fertilizers, producers with weaker positions might have to take on some of the CBAM costs, especially if they are from countries with fewer export options. But producers who provide low-emission, verified goods can often resist this pressure because importers face financial risks if they switch to suppliers without verified data. CBAM is changing price talks by making emissions transparency a key factor in costs for both sides.
What penalties do EU importers face for non-compliance with CBAM rules?
The penalties for not following CBAM rules during the main phase are quite serious. Importers who don’t provide enough CBAM certificates will have to pay a penalty of €100 per tonne of CO₂ equivalent, with this amount adjusted for inflation every year. This penalty is for each tonne of emissions for which certificates are not submitted by the deadline. Besides financial penalties, if importers repeatedly or severely fail to comply, they may be banned from bringing CBAM-covered goods into the EU Single Market. There could also be damage to their reputation, such as public naming by national authorities. These rules highlight that importers can’t ignore CBAM as just a reporting taskmaking mistakes now directly affects their profits and losses.
