CBAM FAQs
What is the EU Carbon Border Adjustment Mechanism (CBAM)?
The Carbon Border Adjustment Mechanism (CBAM) is a price placed on certain carbon intensive goods to level the playing field between domestically produced and imported goods. It is part of the European Green Deal and the Fit for 55 Package that aims to make the EU the first climate-neutral continent by 2050 and cut emissions by 55% by 2030 (relative to 1990 levels). EU CBAM complements the EU Emissions Trading System (EU ETS), which is a carbon market that makes EU manufacturers pay for the greenhouse gases they emit.
What is the EU ETS?
The EU ETS sets a limit on total emissions and reduces that limit each year while allowing companies to trade emission allowances if they are above or below their threshold. This creates an incentive for cost-effective carbon reductions over time.
What is Carbon Leakage?
Carbon leakage occurs when greenhouse gas emissions are not directly reduced but simply shifted abroad. This happens when companies move production to countries with weaker climate policies, or when domestic goods are replaced by more carbon-intensive imports. As a result, stricter climate policies in one region, such as the EU, may unintentionally lower competitiveness at home while raising emissions elsewhere.
Carbon leakage undermines the effectiveness of climate action, puts industries like steel, cement, aluminium, and fertilisers at a disadvantage, and can weaken public support for ambitious policies if they are seen as ineffective.
How does it work?
There are two distinct CBAM regulations – one in place for the EU and another in the UK. They are slightly different but work in similar ways. CBAM works to reduce carbon leakage (and its related problems) and support broader emission targets and policies. By putting a price on imports of certain goods, companies are made liable for the emissions of goods they import.
If you import these goods from outside EU you must register as an authorised declarant, report on the emissions associated with your imports and buy /surrender certificates. Full implementation, including the requirement to purchase certificates, will begin in 2026 to give businesses more time to prepare.
How can my business comply?
Importers must first register as Authorised CBAM Declarants (EU) or prepare for direct tax reporting (UK), create reports on the quantities and embedded emissions of covered goods, and, for the EU, surrender certificates to offset emissions.
Recent proposals aim to simplify CBAM for smaller importers by introducing a de minimis exemption – goods below a certain threshold (e.g., 50 tonnes or £50,000 in value) may be exempt – potentially relieving around 90% of importers while still covering 99% of total emissions.
What is a National Competent Authority (NCA)?
Every country has a contact point that approves declarants, manages the CBAM registry, ensures compliance and sells certificates. For example, in Ireland the assigned NCA is the EPA.
Who is responsible for CBAM compliance and what are they responsible for?
The importer of record – the entity lodging the customs declaration for goods entering the EU – is responsible for CBAM compliance. This includes registering as an authorized declarant, reporting embedded emissions, and submitting CBAM certificates.
Importers of CBAM goods are required to register as authorized declarants and report the quantities and embedded emissions of the goods they import. They must submit quarterly reports detailing their imports starting from January 2025. As part of the full implementation starting in 2027, importers will be required to buy CBAM certificates based on their reported emissions, priced according to EU ETS allowances.
Why is CBAM being implemented in the EU and the UK?
Climate change has internationally been accepted as a major threat to society as recognized in the UN SDGs. The EU and UK – along with many others – have been establishing mechanisms to face this threat directly. The Emission Trading System (ETS) is a technique that aims to reduce emission by placing a price on them.
With tightening regulations in the EU/UK, companies may move production to countries with weaker climate rules – thus cheaper production – and import these goods instead of manufacturing them locally. This is called carbon leakage and CBAM aims to prevent this. Additionally, CBAM aims to level the playing field for EU competitors and encourage global trade partners to lower emissions.
Are there exceptions?
Yes! There are exceptions to CBAM.
In the EU, small imports worth under 150€ or less than 50 tonnes/year may be an exception. Military goods and goods where a carbon price has already been paid are not subject to CBAM. There are also some possibilities for agreements to be made with countries that have similar carbon pricing.
In the UK, small consignments under £50,000/year or goods already in the UK ETS are excluded. If there is a carbon price that has already been paid abroad, it will be deducted from the UK CBAM costs.
What is the timeline for CBAM implementation?
Importers of CBAM goods are required to register as authorized declarants and report the quantities and embedded emissions of the goods they import. They must submit quarterly reports detailing their imports starting from January 2025. As part of the full implementation starting in 2027, importers will be required to buy CBAM certificates based on their reported emissions, priced according to EU ETS allowances.
- Transitional phase (2023 – 2025)
- Started October 2023
- Obligations – Importers must report on emissions quarterly from covered goods. Companies must apply for “authorised CBAM declarant” status in 2025.
- Full Implementation
- Starting January 2026
- Obligations – Importers must buy certificates to cover their emissions.
- Implementation (from 2027)
- Starting January 2027
- Obligations – payments for emissions apply immediately.
- First reporting and payment due on the 31 May 2027
What are the penalties for non-compliance?
The EU CBAM includes structured penalties to enforce compliance, starting with its transitional phase in October 2023 and fully effective from 2026. Failure to surrender CBAM certificates by authorised declarants will face a penalty of €100 for each certificate not surrendered.
Penalties also apply for procedural breaches. Failing to obtain Authorised Declarant status before importing relevant goods, or importing as a non-authorised person, can lead to fines three to five times higher than the certificate penalty, depending on factors such as intent, duration, and cooperation.
The UK CBAM, launching directly into its definitive phase on 1 January 2027, will use a tax-based approach. To enforce compliance, the UK plans a penalty points system like the one recently introduced for VAT.
Additionally, a general penalty will cover offences specific to CBAM, ensuring that importers comply with reporting and payment obligations. The details of penalty amounts and enforcement procedures will be set out by HMRC closer to the launch.
Where can I find more information?
European Commission CBAM pages for detailed information on EU CBAM
UK Carbon Border Adjustment Factsheet for detailed information on UK CBAM
National Competent Authorities (NCAs) for each Member State
