Why does the CBAM exist?
The CBAM is the EU’s response to a key challenge in climate policy: how to cut emissions at home without simply shifting pollution abroad.
With climate rules being stricter in the EU than many other regions, the EU has concerns that companies may move carbon-intensive production to countries with weaker regulations and lower taxes / levies.
In the view of the EU this problem, known as ‘carbon leakage’, undermines global climate efforts and could result in European companies face unfair competition from foreign producers who do not pay comparable carbon prices.
What is the CBAM?
The CBAM effectively seeks to put a fair price on carbon emissions from non-EU manufacturing of certain carbon-intensive goods that are entering the EU.
Declarations are made at import including information on:
- Origin: to allow a calculation of what (if any) price has been paid in the country of origin for the embedded carbon emissions in the production of certain goods; and
- Classification: to allow a calculation of the levies that would have been chargeable in the EU.
The difference between 1 and 2 above being the amount that needs settling to the EU. This ensures that:
- the carbon price of imports is equivalent to the carbon price of domestic production;
- the EU’s climate objectives are not undermined.
What are the key changes from 1 January 2026?
From 1 January 2026, EU importers must report as above at import and, crucially, purchase and surrender CBAM certificates that cover the amount calculated as above as being due in respect of the imported products.
The certificates are priced in line with EU ETS allowances.
The first annual CBAM declaration covering imports in 2026 will be due by 30 September 2027, at which point importers will need to possess and surrender CBAM certificates covering their liability for relevant imports in 2026.
What products does CBAM cover?
CBAM currently applies to
- Iron and steel
- Aluminium
- Cement
- Fertilisers
- Electricity
- Hydrogen
It also includes some precursor materials and processed products linked to these sectors.
Simplified CBAM rules
To ensure CBAM compliance is proportionate, especially for SMEs, the EU adopted a simplification package. This includes:
- De minimis exemption – Importers with total annual volume of CBAM goods of 50 tonnes or less are exempt from CBAM obligations.
- Operational flexibility and procedural simplifications – Some practical adjustments were introduced to reduce administrative burdens, including: (i) simplified authorisation processes, (ii) streamlined data collection and emissions calculation methods, (iii) relaxed reporting deadlines to ensure adequate time for data collection, emission verification and certificate acquisition.
Overall, these changes aim to significantly reduce red tape (particularly for smaller operators) while preserving the environmental objectives and integrity of the CBAM framework.
What now?
Companies importing into the EU, including UK manufacturers and suppliers, should take proactive steps to prepare for compliance. We strongly recommend:
- Considering product classifications to see whether CBAM could apply;
- Mapping supply-chain emissions;
- Collecting emissions data from raw-material suppliers;
- Considering partners who can assist with declarations;
- Engaging accredited verifiers where third-party verification is necessary.
If you need expert advice from Paul Hammond and the team get in touch at enquiries@cowgills.co.uk
