First annual CBAM declaration covering Q1 2026 imports must be filed and certificates surrendered. Missing this deadline triggers per-tonne penalties. Begin data collection immediately if you haven't already.
What Is CBAM?
The Carbon Border Adjustment Mechanism (CBAM) is the EU's policy tool to prevent "carbon leakage" — the risk that EU industrial operators reduce their carbon footprint domestically while simply importing more carbon-intensive goods from countries without equivalent carbon pricing. Under the EU Emissions Trading System (EU ETS), EU manufacturers pay for their carbon emissions. CBAM extends a comparable carbon cost to non-EU producers exporting into the EU, leveling the playing field and incentivizing non-EU countries to adopt carbon pricing mechanisms.
CBAM was established under EU Regulation 2023/956 and entered a transitional phase from October 1, 2023 to December 31, 2025, during which importers reported embedded emissions without financial obligations. From January 1, 2026, the full compliance phase began: importers must now actually purchase and surrender CBAM certificates corresponding to the carbon embedded in their imports.
From Transitional Reporting to Full Compliance
During the transitional phase (Oct 2023 – Dec 2025), authorized CBAM declarants were required only to report the quantity of CBAM goods imported and their embedded emissions on a quarterly basis. No certificates needed to be purchased; the obligation was purely informational. This allowed both EU customs authorities and non-EU exporters time to set up the data infrastructure needed for embedded emissions monitoring.
From January 1, 2026, the obligations are financial:
- Importers of CBAM goods must hold authorized declarant status before importing
- CBAM certificates must be purchased from the national authority at a price reflecting the weekly average EU ETS auction price
- By May 31 of each year, declarants must surrender certificates equal to the embedded emissions in the prior year's imports and file an annual CBAM declaration
The Six Covered Sectors
CBAM currently covers six industrial sectors selected for their significant carbon intensity and carbon leakage risk. The sectors are defined by specific CN (Combined Nomenclature) codes in the EU Customs Tariff. Goods outside these codes are not subject to CBAM, even if they are carbon-intensive.
| Sector | Scope | Covered Emissions |
|---|---|---|
| Cement | Clinker and cement products (CN 2507, 2523) | Direct emissions from production process |
| Steel & Iron | Iron, steel, and certain downstream products (CN 72, select 73) | Direct emissions; indirect emissions for electricity inputs |
| Aluminium | Unwrought and wrought aluminium (CN 7601, 7604–7608) | Direct and indirect emissions (electricity is major emission source) |
| Fertilisers | Nitrogen fertilisers and nitric acid (CN 31, 2808) | Direct emissions from nitrogen production process |
| Electricity | Electrical energy imported into EU (CN 2716) | Emissions from electricity generation in non-EU country |
| Hydrogen | Hydrogen gas (CN 2804 10 00) | Direct emissions from hydrogen production (including electrolysis) |
The European Commission has confirmed that additional sectors — including organic chemicals, polymers, and certain downstream processed goods — will be assessed for inclusion in CBAM from 2028 onward. Companies in adjacent sectors should begin emissions monitoring infrastructure now.
CBAM Certificates: Purchase and Surrender
CBAM certificates are the financial instrument through which importers meet their CBAM obligation. Each certificate corresponds to one tonne of CO₂-equivalent embedded in imported goods.
How to Purchase CBAM Certificates
CBAM certificates are purchased from the national competent authority of the EU member state where the authorized declarant is established. Purchases are made through the CBAM Registry — an EU-wide electronic system. The price per certificate is set each week by the European Commission based on the average closing price of EU ETS allowances auctioned in the preceding week.
Declarants are required to maintain a minimum holding of CBAM certificates equal to 80% of their cumulative quarterly embedded emissions at all times. This means ongoing certificate purchases throughout the year, not just a year-end surrender. Failure to maintain the 80% minimum triggers infringement penalties.
Annual Surrender
By May 31 of each year, authorized declarants must:
- File the annual CBAM declaration for the prior calendar year's imports
- Surrender a number of CBAM certificates exactly equal to the total verified embedded emissions in that year's CBAM goods imports
- Cancel any surplus certificates (certificates cannot be traded or sold back to the competent authority; unused certificates are cancelled at year-end)
The May 31, 2026 Deadline: First Annual Declaration
May 31, 2026 is the most significant near-term compliance deadline. It covers all CBAM goods imported into the EU during calendar year 2025 — but since 2025 was still in the transitional (reporting-only) phase, no certificate surrender is required for 2025 imports. The actual first surrender relates to calendar year 2026 imports, due by May 31, 2027.
However, the May 31, 2026 deadline is still critical: it is the date of the first quarterly minimum holdings check for Q1 2026 imports, meaning declarants must already hold certificates equal to 80% of Q1 2026 embedded emissions by this date. Failure to do so triggers immediate penalty exposure even before the first annual surrender.
Calculating Embedded Emissions
The central technical challenge of CBAM compliance is accurately determining the embedded emissions for each import shipment. Embedded emissions are the greenhouse gas (GHG) emissions released during the production of the imported goods.
Actual vs. Default Values
Declarants can use either actual verified emissions (reported by the non-EU producer and verified by an accredited third-party verifier) or default values published by the Commission. Using actual values is generally favorable for importers sourcing from low-carbon producers; default values are typically conservative (high) and represent average production emission intensities that may be significantly above the actual figure for a specific producer.
Default values are published in the CBAM Transitional Registry and updated periodically. For steel, the Commission's 2026 default value is approximately 1.8 tCO₂e per tonne of steel, while modern electric arc furnace steel production can have embedded emissions of 0.4–0.8 tCO₂e per tonne. The difference between default and actual can represent 50–75% cost reduction in CBAM liability for EAF steel importers.
Third-Party Verification
Actual emission values must be verified by an accredited verifier before they can be used in the annual CBAM declaration. The verifier must be accredited under the same standards as EU ETS verifiers (EN ISO 14065). Non-EU producers should begin engaging accredited verifiers now to ensure verification reports are ready for the 2026 annual declaration cycle.
How the CBAM Price Is Set
CBAM certificate prices are not fixed. They track the EU ETS carbon price, computed as the weekly average closing price of ETS allowances auctioned on the EEX exchange. As of May 2026, EU ETS prices have been in the EUR 55–75 per tonne range, following a period of volatility related to the energy crisis and subsequent industrial activity levels.
For planning purposes, most corporate sustainability and tax teams are using a mid-range planning price of EUR 65 per tonne of CO₂-equivalent for CBAM cost modelling in 2026 budgets. The Commission does not set a price floor or ceiling for CBAM certificates, so the cost exposure is directly linked to EU ETS market conditions.
Exemptions and Carbon Price Reductions
CBAM allows for a reduction in the number of certificates required where the non-EU producing country already imposes an equivalent carbon price on the production of the imported goods. If a producer in country X pays a carbon tax of EUR 40 per tonne on steel production, and the CBAM certificate cost is EUR 65 per tonne, the importer only pays the EUR 25 difference (adjusted for exchange rates and scope equivalence).
Key exemptions and reductions:
- Countries with equivalent carbon pricing: Switzerland (EU ETS-linked), Iceland, Liechtenstein, Norway (EEA) are exempt from CBAM. Goods from these countries face no CBAM obligation.
- Carbon price credit: Where the exporting country has a carbon price, the declarant can claim a reduction for the carbon cost already paid in the country of origin, subject to verification.
- Free allocation phase-out: As EU ETS free allocations to industrial sectors are phased out (planned through 2034), the CBAM obligation will increase proportionally. CBAM certificates partially offset free ETS allocations received by EU producers — if EU producers receive full free allocations, CBAM importers owe the full market price.
Penalties for Non-Compliance
The CBAM Regulation establishes a tiered penalty structure. The key penalties are:
- Failure to surrender sufficient certificates: EUR 100 per tonne of CO₂-equivalent for which certificates are not surrendered (in addition to the certificate cost itself). This penalty rate escalates with the EU ETS carbon price and was set to be three times the average ETS certificate price.
- Failure to maintain the 80% minimum holding: Infringement notice from the competent authority; potential suspension of authorized declarant status.
- Late or incorrect declaration: Financial penalties at national authority discretion, typically EUR 50–250 per calendar day of delay.
- Importing without authorized declarant status: Seizure of goods, prohibition from importing CBAM goods, and criminal referral in severe cases.
CBAM Compliance Action Plan
Step 1: Confirm Authorized Declarant Status
If you import any CBAM goods and are not yet an authorized declarant, apply immediately to your national customs authority. Processing times vary by member state (4–12 weeks). You cannot legally import CBAM goods without this status.
Step 2: Map Your CBAM Goods Imports
Pull all import records for January–March 2026 and identify shipments falling within CBAM CN codes. Quantify total tonnes imported by goods category and by country of origin. This forms the basis of the Q1 80% minimum holdings calculation.
Step 3: Establish Embedded Emissions Data for Each Supplier
For each non-EU supplier, determine whether actual or default emission values will be used. If using actual values, engage a third-party verifier and obtain the producer's emission intensity data. For high-volume suppliers, the investment in actual data is typically justified by the CBAM cost reduction.
Step 4: Purchase CBAM Certificates
Calculate the 80% minimum holding requirement for Q1 2026 imports and purchase the required certificates through the CBAM Registry. Establish a recurring purchase schedule to ensure the 80% minimum is maintained throughout the year.
Step 5: Prepare for Annual Declaration (May 31, 2027)
Establish an internal process for aggregating annual import data, embedded emissions, and certificate holdings. The annual CBAM declaration must be filed through the CBAM Registry and must include third-party verified emission data for each import shipment using actual values.
Step 6: Assess Supply Chain Carbon Price Reductions
For suppliers in countries with domestic carbon pricing (Canada, UK, Switzerland, China), initiate documentation processes to claim carbon price reductions. This involves obtaining official carbon price certifications from the supplier's country of origin — a process that can take several months to establish for the first time.
Frequently Asked Questions
Does CBAM apply to all EU imports from non-EEA countries?
No. CBAM applies only to imports of goods in the six covered sectors (cement, steel, aluminium, fertilisers, electricity, hydrogen) falling within specific CN codes. All other goods — including non-covered manufactured goods, agricultural products, consumer goods, and services — are not subject to CBAM.
Who is the authorized declarant — the EU importer or the non-EU exporter?
The authorized declarant is always the EU-established importer (or customs representative). Non-EU exporters have no direct CBAM obligation to the EU, but they play a critical role in providing embedded emissions data to the importer. The cost of CBAM is typically negotiated into the commercial relationship — exporters in high-carbon-price countries have a competitive advantage under CBAM.
What happens if a non-EU producer refuses to provide emissions data?
If the producer does not provide verified emissions data, the importer must use default values published by the Commission. Since default values are set conservatively (above average actual emissions for modern producers), using defaults increases CBAM cost. This creates a commercial incentive for EU importers to source from producers willing to share verified emission data.
Can CBAM costs be deducted for corporate income tax purposes?
In most EU member states, CBAM certificate costs are deductible as ordinary business expenses for corporate income tax purposes, similar to other input costs. Check local guidance in the member state where the authorized declarant is established, as some countries may have specific rules on the timing of deductibility (accrual vs. cash basis for certificate surrender).
What is the interaction between CBAM and EU ETS free allocations?
CBAM is calibrated to align with the phase-out of free EU ETS allocations to covered industrial sectors. As free allocations are reduced (scheduled reduction from 2026 through full phase-out by 2034), CBAM certificate requirements increase in parallel. By 2034, non-EU importers will face the full EU ETS-equivalent carbon cost with no discount for free allocations. This creates a predictable upward trajectory for CBAM compliance costs over time.
Is CBAM compatible with WTO rules?
This is actively contested. Several countries have raised concerns at the WTO that CBAM constitutes a discriminatory trade measure. The EU argues that CBAM is WTO-compatible under the GATT Article XX environmental exception. No formal WTO dispute settlement ruling has been issued as of May 2026. Companies should monitor this development, particularly for sectors with strong trade flows from WTO-challenging countries.