What is CBAM and how will it impact your business? A plain-English guide

Navigating new EU climate rules can feel overwhelming, but understanding the Carbon Border Adjustment Mechanism (CBAM) is now essential for EU businesses importing certain goods. This guide makes it clear and actionable.

For years, the EU has regulated emissions within its borders through the Emissions Trading System (ETS), pricing carbon to encourage greener production. But this created a risk: 'carbon leakage'. This happens when companies move production to countries with weaker environmental rules, or EU businesses are undercut by cheaper, high-carbon imports. Essentially, carbon leakage undermines the EU’s climate goals by simply shifting emissions elsewhere.

The Carbon Border Adjustment Mechanism (CBAM) solves this by ensuring imported goods face the same carbon price as those produced in the EU, levelling the playing field for your business.

which sectors and products are covered by CBAM?

The EU is rolling out CBAM in phases, focusing first on high-risk, carbon-intensive sectors. If your business imports goods in these categories, it’s time to pay attention.

The primary sectors currently covered are:

• Iron and steel
• Aluminium
• Cement
• Fertilisers
• Electricity
• Hydrogen

This also includes some “downstream” products made from these materials, like screws, bolts, and other iron or steel articles. For a detailed list, it’s always best to consult the official EU guidance.

How CBAM works: a step-by-step guide for importers

CBAM introduces a new process for importers. It might seem complex, but it’s a logical sequence mirroring obligations for EU producers. Here’s a simplified breakdown once the permanent system is in place (from 2026):

1. Become an authorised CBAM declarant: importers will need to apply for authorisation to import CBAM-covered goods.
2. Calculate embedded emissions: for the goods you import, you must calculate the total greenhouse gas emissions released during their production. This often requires detailed data from your non-EU suppliers. For more detail on calculating emissions, you can read our guide on scope 1, 2, and 3 emissions.
3. Declare emissions annually: each year, you will need to declare the total emissions embedded in the goods you imported during the previous year.
4. Purchase CBAM certificates: you must buy CBAM certificates corresponding to the carbon price you would have paid if the goods had been produced under the EU's carbon pricing rules. The price of these certificates will be linked to the weekly average auction price of EU ETS allowances.
5. Surrender certificates: finally, you surrender the number of certificates that matches your declared emissions.

The transitional period: reporting obligations for businesses

Before the financial costs begin, a transitional period started on 1 October 2023 and runs until the end of 2025. During this time, the focus is purely on data collection and reporting, not payment.

Your key obligation as an importer is to submit a quarterly “CBAM report.” This report must include:

• The quantity of each type of good you imported.
• The total embedded greenhouse gas emissions in those goods.
• Any carbon price already paid in the country of origin.

The first report was due by 31 January 2024 for imports in the fourth quarter of 2023, submitted through the CBAM Transitional Registry. The goal is to ease businesses and authorities into the new system. It's a learning phase for everyone, but remember: non-compliance can still lead to penalties. If you're also navigating other regulations, you might find our overview on the CSRD helpful.

Financial implications: understanding the costs

From 1 January 2026, the EU carbon border tax will have a financial impact. The main cost for your business will be purchasing CBAM certificates, priced against the EU’s fluctuating carbon market.

For example, if the EU ETS carbon price is €85 per tonne of CO2, importing goods with 1,000 tonnes of embedded emissions would mean purchasing €85,000 in certificates. The good news? Any carbon price already paid in the country of production can be deducted, avoiding double charges. This mechanism encourages other countries to adopt their own carbon pricing policies.

Preparing your business for cbam compliance

Doing nothing is simply not an option. The transitional period is the ideal time to get your business ready for full CBAM implementation. Here are actionable steps you can take now:

• Identify your exposure: review your import portfolio to determine if you bring any CBAM-covered goods into the EU.
• Engage with your suppliers: open a dialogue with your non-EU producers. You will need them to provide accurate data on the embedded emissions of their products. This can be a significant challenge, so starting early is key.
• Establish a data collection process: create a reliable system for collecting and managing the emissions data required for your quarterly reports. According to analysis by Deloitte, robust data management is critical for compliance.
• Familiarise yourself with the CBAM transitional registry: ensure you have access to and understand how to use the official portal for submitting your reports.
• Plan for future costs: begin forecasting the potential financial impact of purchasing CBAM certificates from 2026 onwards and factor this into your budgeting and pricing strategies.

Navigating import emissions regulations like CBAM requires a proactive approach. By taking these steps, you can ensure a smooth transition, maintain compliance, and adapt to the evolving landscape of global trade and climate policy.

At Hedgehog, we help businesses make sense of complex sustainability requirements. Our Carbon Platform is designed to simplify carbon accounting, making it easier to measure, manage, and report your emissions for regulations just like this.