- An EU Carbon Border Adjustment Mechanism (CBAM) sets a carbon price on imports of selected products (initially cement, iron and steel, aluminium, fertilisers, electricity and hydrogen) to prevent “carbon leakage” and to encourage non-EU countries to adopt similar net zero plans. Under the full scope CBAM regime, EU importers would be required to buy CBAM certificates from their national authorities (carbon prices already paid on production would be deducted from the certificate price, which is linked to the EU ETS).
- The CBAM will gradually replace the EU ETS free emissions allowances mechanism, by means of a 9-year phasing out of the free allowances under the EU ETS from 2026 to 2034, and a corresponding phasing-in of the CBAM.
- The EC proposed to allocate to the EU budget 75% of CBAM revenues, increasing its strategic importance for the EU.
- The CBAM is currently in the transitional application phase (until 31 December 2025) during which only reporting is required from importers (but no purchase of CBAM certificates).
- In June 2025, the European Parliament and the EU Council agreed, subject to the formal approval by both institutions, on the small importer exemption which will exempt 90% of importers from the CBAM reporting obligation, as part of the wider EC Omnibus simplification proposal. This will be followed by a more comprehensive review of CBAM, and a legislative proposal extending CBAM to downstream products and introducing additional anti-circumvention measures.
- Timing: following the transitional application phase, the CBAM is being phased in from 2026 until 2034 at the same speed as the free allowances in the EU ETS are being phased out. A comprehensive review of CBAM is expected later in 2025 and a legislative proposal on extending the scope of CBAM is expected in early 2026.
Resources (click to open)
.jpg)