The rules for importing carbon-intensive goods into the European Union have changed. As of January 2026, the EU Carbon Border Adjustment Mechanism (CBAM) has entered its definitive phase, introducing new compliance responsibilities and future carbon costs for businesses trading with Europe.
For companies importing cement, aluminium, iron and steel, and other covered products, CBAM is no longer just about tracking emissions. It now influences purchasing decisions, supplier relationships, and long-term financial planning.
But the impact goes beyond importers. Businesses expanding into the EU must also consider how changing environmental regulations affect their supply chains and operational strategies.
Understanding EU CBAM in 2026 is essential for avoiding compliance issues, managing import costs, and making informed decisions about European market entry.
What Is the EU Carbon Border Adjustment Mechanism?
The EU Carbon Border Adjustment Mechanism is a policy designed to apply a carbon cost to certain goods imported into the European Union. Its purpose is to ensure that imported products face a carbon price comparable to goods produced within the EU.
CBAM forms part of the EU’s broader climate strategy and works alongside the EU Emissions Trading System (EU ETS).
Why the EU introduced CBAM
Under the EU ETS, producers within the EU face costs associated with their greenhouse gas emissions. However, manufacturers operating outside the EU may face lower carbon costs or no comparable carbon pricing requirements.
This difference creates a risk of carbon leakage.
Carbon leakage occurs when businesses move carbon-intensive production to countries with less stringent climate policies, or when EU-produced goods are replaced by higher-emission imports.
The EU introduced CBAM to address this imbalance. By applying a carbon price to selected imported goods, the mechanism aims to create a more level playing field while encouraging cleaner production practices.
How EU CBAM works
The CBAM system considers the embedded emissions associated with producing certain imported goods.
Under the definitive regime, eligible EU importers must declare the emissions associated with covered imports and surrender the corresponding CBAM certificates.
The number of certificates required depends on factors including the quantity of goods imported, their embedded emissions, and applicable adjustments.
Where a carbon price has already been paid in the country of production, importers may qualify for a reduction in their CBAM obligation, provided they can supply the required evidence.
For businesses, this makes emissions data an increasingly important part of international trade. Supplier selection can no longer depend on product quality, delivery timelines, and price alone.
What Changes Under EU CBAM in 2026?
The most significant change in 2026 is the transition from emissions reporting to a system that creates financial obligations for covered imports.
The CBAM regulation was introduced in stages to give businesses time to prepare. With the definitive regime now in effect, companies need to understand which requirements apply immediately and which deadlines come later.
From the transitional period to full CBAM implementation
The CBAM transitional period began on October 1, 2023, and continued through December 31, 2025.
During this phase, affected importers were required to submit quarterly CBAM reports covering embedded emissions in specified goods. The mechanism during the transitional period focused on collecting information rather than requiring businesses to purchase CBAM certificates.
From 1 January 2026, the definitive CBAM implementation framework took effect.
Importers covered by the regulation must now meet applicable authorization requirements, maintain emissions information, and prepare for annual declarations and certificate surrender.
However, the financial timetable is important.
CBAM certificates for 2026 imports will become available for purchase in February 2027. The first annual CBAM declaration and corresponding certificate surrender deadline is September 30, 2027.
This means businesses should prepare for future payments now, even though certificate purchases do not begin during 2026.
Key CBAM requirements businesses should know
Businesses subject to CBAM must address several operational requirements.
- Authorization: Importers exceeding the applicable threshold generally need authorized CBAM declarant status.
- Emissions data: Businesses must collect reliable information about the embedded emissions of covered imports.
- Annual declarations: Authorized CBAM declarants must submit the required information through the CBAM registry.
- Certificate obligations: Businesses must purchase and surrender the required CBAM certificates according to the applicable schedule.
- Recordkeeping: Supporting information must be maintained to demonstrate compliance.
Failure to meet CBAM obligations can result in penalties and, in certain cases, customs-related restrictions.
For businesses entering European markets, CBAM compliance should be assessed before signing major supply agreements or committing to long-term import arrangements.
Which Businesses and Industries Are Affected by EU CBAM?
Not every business importing goods into the EU is subject to CBAM. The regulation initially targets sectors with significant carbon emissions and a higher risk of carbon leakage.
Understanding the scope of CBAM is the first step toward determining whether your company needs to take action.
Products covered by EU CBAM
The initial CBAM sectors include:
- Iron and steel: Selected products used in construction, manufacturing, and industrial applications.
- Aluminium: Covered aluminium products used across manufacturing and industrial supply chains.
- Cement: Certain cement products associated with emissions-intensive production.
- Fertilisers: Specified fertiliser products and related inputs.
- Electricity: Electricity imported into the EU under applicable arrangements.
- Hydrogen: Covered hydrogen products.
CBAM coverage depends on specific customs classifications, not simply a product’s general industry category.
Businesses should therefore check the Combined Nomenclature (CN) codes used for their imports to determine whether individual products fall within the regulation.
Does CBAM apply to your business?
The definitive regime includes a 50-tonne annual mass threshold for covered goods in the relevant sectors, excluding electricity and hydrogen.
Importers whose cumulative qualifying imports remain within the threshold are generally exempt from CBAM obligations for those goods.
However, the threshold does not apply in the same way to electricity and hydrogen imports.
Businesses importing larger volumes of covered products need to assess their authorization, emissions reporting, and certificate requirements.
Non-EU manufacturers also have an important role.
Although the formal reporting obligation generally falls on the EU importer or authorized declarant, foreign producers may need to provide accurate emissions data to maintain commercial relationships with European customers.
Even businesses excluded from CBAM’s direct requirements may experience indirect effects through supplier pricing, procurement conditions, or customer requests for emissions information.
How Does EU CBAM Affect Import Costs and Supply Chains?
CBAM introduces a new financial consideration into international sourcing. For affected businesses, the carbon content of imported products can influence the total cost of bringing goods into the European market.
This creates a practical challenge: companies need to understand their emissions exposure before they can accurately forecast future import costs.
Understanding CBAM costs and the EU ETS carbon price
The cost of CBAM certificates is linked to carbon prices under the EU ETS.
In 2026, certificate prices are calculated using quarterly averages of EU ETS allowance auction prices. From 2027, the calculation moves to weekly averages.
The actual certificate obligation depends on the embedded emissions of imported goods, applicable adjustments, and the gradual phase-in of CBAM alongside changes to free allocation under the EU ETS.
Importers may also receive a reduction for an eligible carbon price already paid in the country where the goods were produced.
Consider two suppliers offering comparable aluminium products.
One operates with relatively low production emissions. The other relies on a more carbon-intensive manufacturing process.
Even if the second supplier offers a lower purchase price, its products may create greater CBAM exposure for the EU importer.
This does not automatically make the lower-emission supplier cheaper. It means procurement teams need to evaluate carbon costs alongside conventional purchasing expenses.
What CBAM means for international supply chain planning
For businesses importing goods into the EU, CBAM creates three important priorities.
First, improve supplier transparency. Companies need dependable information about the emissions generated during production. Without accurate data, calculating CBAM exposure becomes more difficult.
Second, reassess sourcing decisions. Suppliers with reliable emissions records and lower-carbon production methods may become more attractive commercial partners.
Third, update financial forecasts. Future certificate purchases, emissions verification, and administrative requirements should be considered when evaluating import profitability.
The broader lesson is that supply chain resilience now includes regulatory readiness.
Companies that understand their carbon exposure can make more informed purchasing decisions and reduce the risk of unexpected costs as CBAM requirements develop.
EU and UK CBAM: What Are the Main Differences?
Businesses operating across European markets need to distinguish between EU CBAM and UK CBAM. Although both mechanisms address carbon leakage, they are separate regulatory frameworks.
The EU’s system entered its definitive phase in January 2026, while the United Kingdom plans to introduce its own CBAM on January 1, 2027.
EU CBAM vs. UK CBAM implementation
The two systems share a broad objective: ensuring that certain imported products face carbon costs reflecting emissions generated during production.
However, their implementation timelines, product coverage, thresholds, and administrative requirements differ.
| Area | EU CBAM | UK CBAM |
|---|---|---|
| Start date | January 1, 2026 | January 1, 2027 |
| Initial coverage | Cement, iron and steel, aluminium, fertilisers, electricity, hydrogen | Aluminium, cement, fertiliser, hydrogen, iron and steel |
| Carbon pricing | Linked to EU ETS | Linked to the UK's carbon pricing framework |
| Compliance | Authorized declarants, annual declarations, certificates | Separate UK tax and administrative requirements |
| Threshold | 50 tonnes annually for specified goods, with exceptions | £50,000 annual registration threshold for relevant imports |
These differences mean that businesses cannot assume compliance with one framework automatically satisfies the other.
What businesses trading across the EU and UK should consider
Companies importing goods into both markets should review their supply chains separately.
Product classifications, carbon calculations, applicable exemptions, and administrative processes may differ between jurisdictions.
For businesses expanding across Europe, maintaining consistent supplier emissions records can make compliance easier. However, those records still need to meet the requirements of each regulatory system.
Preparing for UK CBAM by 2027 should therefore be part of a wider cross-border trade strategy rather than an extension of EU reporting alone.
How to Comply With EU CBAM in 2026
Complying with the EU Carbon Border Adjustment Mechanism requires more than understanding the regulation. Businesses must follow specific authorization, emissions reporting, and documentation procedures to meet their obligations.
For companies importing goods into the EU, these steps help turn CBAM requirements into a manageable compliance process.
1. Confirm which imports require CBAM compliance
Start by reviewing the customs classifications of the products your business imports.
The scope of the CBAM is determined by specific product codes, so not every item containing iron and steel, aluminium, or cement automatically qualifies as a covered product.
Check the European Commission’s official guidance to confirm which goods are subject to CBAM and whether any exemptions apply.
This helps businesses avoid unnecessary reporting while ensuring covered imports are properly identified.
2. Obtain authorized CBAM declarant status
Businesses required to import CBAM goods under the definitive regime generally need authorization from the competent authority in the relevant EU member state.
Applications are managed through the CBAM registry, which allows businesses to submit information and communicate with regulatory authorities.
Importers should confirm their authorization status before arranging shipments. Where authorization is required, customs clearance may depend on having an approved application or qualifying pending application under the applicable rules.
3. Calculate and verify embedded emissions
Accurate emissions calculations are essential for meeting CBAM reporting requirements.
EU importers must work with foreign producers to obtain information about the greenhouse gas emissions associated with the production of goods imported to the EU.
This includes identifying the carbon emitted during relevant manufacturing processes and applying the calculation methods required under the regulation.
Where actual emissions data is required, businesses must also arrange the necessary verification by an accredited verifier.
Maintaining consistent communication between foreign producers and EU importers can help prevent missing information and declaration errors.
4. Submit the required CBAM declarations
Authorized CBAM declarants must submit annual declarations through the CBAM registry.
These declarations include the quantity of covered goods imported, their embedded emissions, and the corresponding certificate obligations.
Businesses should ensure that customs records, supplier emissions data, and supporting calculations are consistent before submission.
The first annual declaration covering 2026 imports is due by September 30, 2027.
5. Purchase and surrender CBAM certificates
Businesses must buy CBAM certificates to meet their applicable financial obligations.
The number of certificates required reflects the embedded emissions of covered imports, adjusted according to the CBAM rules.
Where an eligible carbon price has already been paid in the country of production, businesses may claim a reduction in the corresponding obligation.
The EU carbon price used in the CBAM system is linked to allowances under the EU Emissions Trading System.
Although the obligation relates to imports made during 2026, certificate purchases begin in February 2027.
Importers should maintain sufficient financial records to support certificate calculations, payments, and surrender requirements.
6. Maintain accurate CBAM compliance records
CBAM compliance continues beyond submitting declarations.
Businesses must retain the documentation supporting their reported emissions, imported quantities, and applicable carbon price adjustments.
These records may be reviewed by regulatory authorities to confirm that declarations are accurate and obligations have been met.
Establishing a centralized process for storing supplier information, verification reports, and customs documents can make future compliance reviews easier.
As the implementation of CBAM continues, businesses should also monitor guidance from the European Commission to ensure their procedures remain aligned with current requirements.
How Does EU CBAM Influence International Expansion?
EU CBAM highlights a broader reality of international expansion: entering a new market requires more than identifying customers and securing suppliers.
Companies also need to understand the regulatory and operational responsibilities associated with doing business across borders.
For businesses considering European growth, the challenge is building the right capabilities without creating unnecessary complexity.
Rethinking EU market entry and operational readiness
Traditional international expansion often begins with establishing a local legal entity.
But setting up an entity before testing a market can create additional administrative work, ongoing expenses, and employment-related responsibilities.
For businesses exploring EU opportunities, a more flexible approach may be appropriate.
Companies can assess trade requirements, evaluate supplier relationships, and build regional capabilities before committing to a permanent corporate structure.
CBAM does not determine whether a company must establish a local entity. Its customs and importer requirements must be assessed separately.
However, the regulation reinforces the importance of planning market entry around actual operational needs rather than assuming every expansion requires the same structure.
Building flexible teams across European markets
Businesses managing international supply chains may need employees in European markets to coordinate procurement, support suppliers, manage operations, or develop customer relationships.
An Employer of Record (EOR) can help companies employ eligible workers in another country without first establishing their own local employing entity.
Through an EOR arrangement, businesses can access support for local employment contracts, payroll administration, statutory benefits, and employment compliance.
This can be particularly useful when a company needs a small regional team before deciding whether a permanent local entity makes commercial sense.
EOR services do not replace CBAM compliance, customs registration, or specialist trade advice.
Instead, they address a different challenge: helping businesses build and manage international teams while keeping their expansion strategy flexible.
For companies navigating changing EU regulations, this separation of responsibilities can support a more manageable approach to cross-border growth.
Preparing Your Business for EU CBAM
EU CBAM changes how businesses evaluate carbon-intensive imports, manage supplier relationships, and plan their European operations.
For companies affected by the regulation, the immediate priority is clear: understand your obligations, collect reliable emissions data, and prepare for future carbon costs.
For businesses expanding internationally, CBAM also reinforces the value of flexible operating models. Regulatory requirements will continue to evolve, but companies can make smarter decisions by separating trade compliance needs from employment and market-entry arrangements.
Expanding into Europe? Empleyo helps businesses hire international talent, manage cross-border HR operations, and establish local teams through Employer of Record (EOR) solutions – without the complexity of setting up a local employing entity in every market.
Frequently Asked Questions About EU CBAM
Businesses often have practical questions about CBAM deadlines, covered products, and compliance responsibilities. The answers below address the most common concerns for companies importing goods into Europe.
EU CBAM is a system that applies a carbon cost to certain goods imported into the European Union. It aims to ensure imported products face carbon pricing comparable to EU-produced goods, helping prevent carbon leakage and supporting the EU's climate objectives.
The transitional reporting phase began on October 1, 2023. The definitive regime started on January 1, 2026. Certificate sales begin in February 2027, and the first annual declaration and surrender deadline for 2026 imports is September 30, 2027.
CBAM initially covers specified goods in six sectors: iron and steel, aluminium, cement, fertilisers, electricity, and hydrogen. Whether a product is covered depends on its customs classification. Businesses should review the relevant CN codes rather than relying on broad product descriptions.
Businesses importing no more than 50 tonnes annually of qualifying goods in the relevant sectors are generally exempt. However, electricity and hydrogen are treated differently. Companies should assess their import volumes and product classifications to confirm whether CBAM obligations apply.
