Carbon Border Adjustment Mechanism
The EU's carbon border tax is now live. Since 1 January 2026, importers of steel, aluminium, cement, fertilisers, electricity, and hydrogen must purchase certificates for embedded emissions -- priced at EUR 75.36/tCO2e in Q1 2026.
When a factory in the EU makes steel or cement, it pays for the carbon dioxide it releases through the EU Emissions Trading System (ETS). Factories outside Europe usually do not face the same cost. That price gap gives foreign producers a competitive advantage and risks pushing production -- and pollution -- to countries with weaker climate rules. This problem is called "carbon leakage."
CBAM closes that gap. Starting in January 2026, any company that imports cement, iron and steel, aluminium, fertilisers, electricity, or hydrogen into the EU must report the emissions embedded in those goods and buy certificates to cover them. The certificate price tracks the EU carbon market, so importers pay roughly the same carbon cost that EU manufacturers already bear.
During a two-year transition (October 2023 to December 2025), importers only had to report emissions -- no payments were required. Now, in the definitive phase, financial obligations are real: the first certificates must be purchased from February 2027, and the first annual declaration is due by 30 September 2027 for goods imported throughout 2026. A de minimis threshold introduced by the October 2025 Omnibus simplification exempts importers bringing in 50 tonnes or less per year, relieving roughly 182,000 smaller operators.
The system ramps up gradually. EU factories still receive some free emission allowances, but those allowances shrink every year until they reach zero in 2034. As free allowances fall, CBAM certificate costs rise, until imports and domestic production face identical carbon pricing. The EU has also proposed extending the mechanism to around 180 downstream products -- things like car parts, machinery, and appliances that contain large amounts of steel or aluminium -- from 2028 onward.
Switzerland is not part of the EU Emissions Trading System and CBAM does not directly apply to Swiss-based importers. However, Swiss companies that export carbon-intensive goods to EU customers are indirectly affected: their EU buyers must purchase CBAM certificates to cover the emissions embedded in those imports, making the carbon footprint of Swiss products a commercial concern for the first time.
Switzerland operates its own ETS, linked to the EU ETS since 2020, which covers large industrial emitters. Swiss exporters of CBAM-covered goods to the EU may be able to claim a reduction in the CBAM certificate obligation if they can demonstrate that a carbon price was already paid in Switzerland -- but the administrative procedures for this cross-border credit are still being finalised. Companies exporting steel, aluminium, cement, or fertilisers to EU markets should begin collecting verified emissions data at installation level now, as EU importers will increasingly require it to avoid costly default values.
The EU Carbon Border Adjustment Mechanism entered its definitive phase on 1 January 2026, marking the transition from a reporting-only regime to one with real financial teeth. After a two-year transitional period during which importers submitted quarterly emissions reports without financial consequences, authorised CBAM declarants must now purchase certificates for every tonne of CO2 embedded in their imports of cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen.
The first quarterly certificate price was published on 7 April 2026 at EUR 75.36 per tonne of CO2 equivalent, reflecting the average EU ETS auction price for Q1 2026. This price will fluctuate quarterly and is expected to track above EUR 70 as the ETS cap tightens through the decade. For importers, this translates to material cost increases: a typical shipment of 1,000 tonnes of steel with embedded emissions of approximately 1.8 tCO2e per tonne would require certificates worth roughly EUR 135,000, less any free allocation adjustment and third-country carbon price deductions.
A central tension in the definitive phase is the choice between actual and default emissions values. Importers who obtain verified actual emissions data from their suppliers can potentially demonstrate lower carbon intensity and reduce certificate costs. However, verification requires in-person site visits to each production facility in the supply chain, creating logistical bottlenecks -- facilities cannot calculate their 2026 emissions until year-end, and importers must submit their data by September 2027. Default values, while simpler, carry a punitive markup: 10% in 2026, rising to 30% by 2028, designed to incentivise the collection of actual data. For fertilisers, the markup is only 1% given the complexity of chemical supply chains.
CBAM operates in lockstep with the phase-out of EU ETS free allocations for covered sectors. In 2026, the free allocation adjustment factor is 97.5%, meaning importers only pay CBAM on 2.5% of what they would otherwise owe. This factor drops steadily -- to 90% in 2028, 51.5% in 2030, and reaches zero in 2034, when CBAM fully replaces free allocation as the mechanism to prevent carbon leakage. The interplay between these two instruments is the economic heart of CBAM: as EU producers lose their free allowances, imported goods face correspondingly higher carbon costs at the border.
In December 2025, the Commission proposed extending CBAM's scope to 180 downstream products with high steel or aluminium content -- machinery, vehicle components, domestic appliances, and construction equipment averaging 79% metal content by weight. A two-step expansion is planned: downstream goods and anti-circumvention measures in 2026-2027, followed by a 2027 review covering indirect emissions for additional sectors and possible extension to chemicals. The October 2025 Omnibus simplification package also streamlined administrative requirements to reduce the burden on importers and third-country producers.
For businesses, CBAM compliance is not merely a customs procedure but a cross-border data, verification, and cost-exposure challenge that requires deep supplier engagement, emissions monitoring infrastructure, and strategic procurement decisions. Companies that proactively invest in actual emissions data from their supply chains will have a structural cost advantage over those relying on default values.
| SECTOR | CN CODES | EXAMPLES | DIRECT | INDIRECT | RISK |
|---|---|---|---|---|---|
| Iron & Steel | 72, 73 | Pig iron, ferro-alloys, flat/long products, tubes, wire | Yes | -- | CRITICAL |
| Aluminium | 76 | Unwrought aluminium, bars, rods, profiles, wire, foil, tubes | Yes | -- | CRITICAL |
| Cement | 2523 | Portland cement, aluminous cement, clinker | Yes | Yes | CRITICAL |
| Fertilisers | 2808, 2814, 3102-3105 | Nitric acid, ammonia, nitrogen/phosphate fertilisers, urea | Yes | Yes | HIGH |
| Electricity | 2716 | Electrical energy imports via interconnectors | Yes | -- | HIGH |
| Hydrogen | 2804 10 00 | Hydrogen gas | Yes | -- | HIGH |
In December 2025, the Commission proposed extending CBAM to downstream products with high steel/aluminium content (avg. 79% by weight):
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