compliance//3 min read
CBAM explained: the EU carbon border tax and what exporters must report
From 2026, EU importers of steel, aluminium, cement, fertilisers, hydrogen and electricity pay for the carbon emitted making them. The price depends on emissions data that only the producer has. What CBAM is, how it works, and what Indian exporters should prepare.
In short
- CBAM puts a carbon price on imports of cement, iron and steel, aluminium, fertilisers, electricity and hydrogen.
- After a reporting-only transition (October 2023 to December 2025), the definitive period began on 1 January 2026.
- Importers pay through CBAM certificates priced from the EU carbon market, for emissions embedded in what they import.
- Real installation data usually beats the EU's default values, and only the producer can provide it.
A practical overview for product and engineering teams, not legal advice. Dates and thresholds in EU rules have changed more than once, so check the official European Commission pages before you rely on a detail.
The Carbon Border Adjustment Mechanism, Regulation (EU) 2023/956, is the EU's answer to carbon leakage: the risk that production moves to countries with weaker climate rules. EU producers in heavy industry pay for their emissions through the EU Emissions Trading System. CBAM asks importers to pay a matching price for the emissions embedded in certain goods made abroad.
Which goods
- Cement
- Iron and steel, including many downstream products such as screws, bolts and tubes
- Aluminium
- Fertilisers
- Electricity
- Hydrogen
Coverage is defined by customs code. The Commission has signalled extensions to more downstream products over time, so check the current list for your codes.
How the timeline runs
Period | What importers do |
|---|---|
Oct 2023 to Dec 2025: transitional | Quarterly reports of embedded emissions. No payment. |
From 1 Jan 2026: definitive | Only authorised CBAM declarants may import covered goods. Emissions are declared each year and covered by CBAM certificates. |
2026 to 2034: phase-in | The CBAM charge rises as free allowances for EU producers in the same sectors are phased out. |
The 2025 simplification package added an annual threshold of 50 tonnes of covered goods per importer, below which CBAM obligations do not apply, and moved the first certificate sales and annual declarations for 2026 imports into 2027. These details are exactly the kind that change, so confirm them against the Commission's CBAM pages.
What gets priced: embedded emissions
Embedded emissions are the greenhouse gases released in producing the goods. For all CBAM goods that includes direct emissions from the production process; for some sectors, such as cement and fertilisers, indirect emissions from the electricity used are also counted. For complex goods, the emissions of key inputs (precursors), such as the pig iron in steel, are added in.
The importer can use actual data from the producing installation, verified by an accredited verifier, or the EU's default values. Defaults are deliberately conservative and are being raised over time, so good installation data usually means a lower bill for the buyer and a stronger position for the exporter.
The price, and what can be deducted
CBAM certificates are priced from auctions in the EU Emissions Trading System. A carbon price actually paid in the country of production can be deducted. Voluntary carbon credits bought by the producer do not count as a carbon price paid.
What Indian exporters should prepare
India is a major supplier of steel and aluminium to the EU. EU customers already ask their suppliers for installation-level emissions data, and those requests carry more weight now that real money depends on the answer.
- To do: List which of your products' customs codes fall under CBAM
- To do: Define your installations and production processes the way the CBAM methodology does
- To do: Measure fuel, materials and electricity per installation and per period
- To do: Collect emissions data for precursors from your own suppliers
- To do: Calculate specific embedded emissions per tonne of each product
- To do: Prepare for verification by an accredited verifier
- To do: Agree a data format and delivery schedule with each EU customer
Under CBAM, emissions data becomes part of the price. The exporter with good numbers has a better product.
