The EU’s Carbon Border Adjustment Mechanism, (CBAM), applicable to aluminium, iron and steel, cement, fertilisers, hydrogen, and electricity

The Carbon Border Adjustment Mechanism (CBAM) has been conceived by the EU with the aim of accompanying the phase-out in the period 2026-2034 of free allowances in the EU Emissions Trading Scheme (ETS).

It targets a select (but large) list of goods with a high risk of carbon leakage in six key sectors: aluminium, iron and steel, cement, fertilisers, hydrogen, and electricity. The list mainly includes products in the first stages of value-added chains. From 2026, when such goods are produced abroad and imported into the European market, they will be subject to a carbon price, equivalent to what would be paid under the European ETS.

Unlike a conventional tariff, the CBAM introduces new obligations, costs, and risks in international trade operations. These challenges include additional reporting, adaptation to new IT systems, modification of emission calculation methodologies in non-EU production facilities and a dynamic and multi-factorial CBAM pricing system. In fact, not only factors specific to producers and importers will enter the equation, but also external factors (such as EU ETS allowance trading, carbon prices applicable in the country of production), adding a layer of complexity. Importers and producers will need to understand, negotiate, and strategically plan how to manage these challenges to minimise operational, financial, and legal risks.

The implementation of CBAM starts with a transitional phase, until the end of 2025, during which companies only have comply with emissions reporting obligations for goods imported into the EU market. During this period, the EU is analysing the information received, with a view to assess the possibility of extending the CBAM to additional GHG and other carbon-intensive sectors or goods (among those covered by the ETS, such as glass, ceramics, plastics, and paper), as well as upgrading the IT tools and completing the procedures and complementary legislation necessary for the implementation of the remaining CBAM obligations.

For companies, in the short term, the biggest challenge related to CBAM lies in calculating the embedded emissions of goods in accordance with specific legal requirements and putting in place the mechanics for preparation and submission of reports. This requires implementing in-house procedures for measuring and attributing emissions, as well as obtaining this information from selected suppliers in the supply chain. This process requires significant efforts to raise awareness and engage with key suppliers to ensure that they can provide the necessary information and remain a key business partner.

In the medium term, however, the challenge is broader and multidimensional. To protect and promote a company’s competitive position, it is not enough to install compliance procedures; the company’s competitive starting point needs to be assessed in terms of its carbon efficiency in order to plan how to improve it by 2034, when the CBAM will reach its maximum impact on imports (i.e. at the same time as the ETS sectors in the EU will have 100% of their free allowances removed).

In this context, Equinoccio offers customised and impartial advice on how to address CBAM requirements. Our extensive experience working with both the private export sector and the institutions responsible for trade policy formulation and implementation gives us a deep understanding of the relevant implications and challenges for each actor. We have strong in-house expertise in international trade and work closely with leading legal, sectoral and decarbonisation specialists. This enables us to provide coherent, strategic, and independent advice on CBAM, tailored to each client’s needs.