The European Union’s Carbon Border Adjustment Mechanism (CBAM) is a policy designed to put a fair price on the carbon emissions associated with imported goods. As part of the EU’s broader climate strategy, CBAM ensures that companies importing carbon-intensive products pay a price comparable to the cost EU businesses face under the Emissions Trading System (EU ETS).
Why was CBAM introduced?
One of the key challenges in global climate policy is carbon leakage – when companies shift production to countries with more lenient emissions regulations to reduce costs. CBAM addresses this issue by levelling the playing field. By applying a carbon price to imports, the EU incentivises both European and international companies to decarbonise, ensuring that ambitious climate policies do not disadvantage local industries.
How does CBAM work?
CBAM is being implemented in phases, with full enforcement expected by 2026. Key aspects include:
- Transitional phase (2023–2025): Importers of CBAM-covered goods – such as cement, iron and steel, aluminum, fertilisers, electricity, and hydrogen – must report their embedded emissions but do not yet pay a financial adjustment.
- Full implementation (2026 onwards): Importers will be required to purchase CBAM certificates, with prices mirroring the EU ETS carbon price. The number of certificates corresponds to the carbon footprint of the imported goods.
What does this mean for businesses?
Companies importing affected products into the EU must prepare for increasing regulatory and financial obligations. Steps to take include:
- Tracking emissions: Importers need to assess and report the carbon footprint of their supply chains.
- Engaging with suppliers: Businesses should work with international suppliers to improve emissions data accuracy and explore lower-carbon alternatives.
- Integrating CBAM costs: Understanding the financial impact of CBAM will be essential for budgeting and pricing strategies.
- Exploring decarbonisation strategies: Companies can invest in cleaner production methods or offset residual emissions through certified climate financing projects.
CBAM and carbon offsetting: how do they connect?
While CBAM itself does not directly recognise offsetting to reduce reported emissions, companies affected by the mechanism can use verified climate projects to address their overall carbon footprint. Investing in high-quality carbon reduction and removal projects can support broader decarbonisation goals and demonstrate climate leadership beyond compliance.
The bigger picture
CBAM is a milestone in climate policy, signaling a shift toward carbon-conscious global trade. For businesses operating in or exporting to the EU, understanding and adapting to this framework is critical. While compliance is the immediate concern, forward-thinking companies can see CBAM as an opportunity – to innovate, build sustainable supply chains, and contribute to global emissions reductions.
At Atmoz, we help businesses navigate carbon regulations and implement effective climate strategies. If you need guidance on understanding CBAM’s impact on your operations or want to explore offsetting options, get in touch with our team.
