The Carbon Border Adjustment Mechanism (CBAM) is an EU regulation designed to put a carbon price on certain goods imported into the European Union. It was legislated as part of the European Green Deal and the Fit for 55 package, which aims to reduce the EU's net greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels. The CBAM's primary purpose is to prevent "carbon leakage," which is the relocation of emissions-intensive production from the EU to countries with less stringent climate policies, thereby undermining the EU's climate goals.
The mechanism works by requiring EU importers to purchase CBAM certificates that correspond to the embedded greenhouse gas emissions in the imported goods. The price of these certificates is calculated based on the weekly average auction price of allowances in the EU Emissions Trading System (EU ETS), which is the EU's internal carbon market. This effectively mirrors the carbon cost paid by EU producers under the EU ETS, creating a level playing field. The CBAM initially covers imports of iron, steel, cement, aluminium, fertilisers, electricity, and hydrogen. A key provision allows the importer to deduct any carbon price already paid in the country of origin from their CBAM obligation, avoiding double payment.
The CBAM entered into force on May 17, 2023, as Regulation (EU) 2023/956. It is currently in a transitional reporting phase, which began on October 1, 2023, and lasts until December 31, 2025. The full financial regime, requiring the purchase and surrender of CBAM certificates, is set to begin on January 1, 2026. The CBAM is intrinsically connected to the EU ETS, as the free allocation of emissions allowances for EU producers in the covered sectors will be gradually phased out between 2026 and 2034 to maintain WTO compatibility. Recent amendments, such as Regulation (EU) 2025/2083, have introduced simplifications, including a new de minimis exemption for importers bringing in 50 tonnes or less of covered goods per year, and a postponement of the start of CBAM certificate sales to February 1, 2027. The core mechanism of carbon pricing on imports remains the same.