CBAM (Carbon Border Adjustment Mechanism)
CBAM is the EU's carbon border tax that applies a carbon price to imports of certain goods — cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen — to prevent carbon leakage and level the playing field between EU producers subject to the Emissions Trading System (ETS) and importers from countries without equivalent carbon pricing.
CBAM entered its transitional phase on October 1, 2023, requiring importers of covered goods to report embedded emissions quarterly. The definitive phase begins in 2026, when importers must purchase CBAM certificates matching the embedded emissions of their imports, minus any carbon price already paid in the country of origin.
The mechanism is designed to prevent "carbon leakage" — where EU production moves to countries with weaker climate policies, resulting in no net global emission reduction. By pricing imports' carbon content, CBAM ensures that EU producers subject to ETS carbon costs are not at a competitive disadvantage.
For non-EU manufacturers exporting to the EU, CBAM creates a strong incentive to reduce production emissions and accurately measure product carbon footprints. Exporters who can demonstrate lower actual emissions pay less than those relying on default (higher) emission values.
This has significant implications for supply chain carbon accounting. Companies sourcing steel, aluminum, cement, or fertilizers need to know the embedded emissions of their purchases — and suppliers need to provide that data. Product-level carbon accounting becomes a trade compliance requirement, not just a sustainability exercise.
Frequently asked questions
What is CBAM? +
CBAM (Carbon Border Adjustment Mechanism) is the EU's carbon border tax on imports of cement, steel, aluminum, fertilizers, electricity, and hydrogen. It prevents carbon leakage by pricing imported goods' embedded emissions to match EU domestic carbon costs under the ETS.
When does CBAM take effect? +
CBAM's transitional phase began October 1, 2023 (reporting only). The definitive phase starts in 2026, when importers must purchase CBAM certificates matching the embedded emissions of their imports.
Related terms
Product Carbon Footprint (PCF)
A product carbon footprint (PCF) quantifies the total greenhouse gas emissions associated with a product throughout its lifecycle — from raw material extraction (cradle) through manufacturing, distribution, use, and end-of-life disposal (grave). It is expressed in units of CO₂e per functional unit of the product.
Supply Chain Emissions
Supply chain emissions are the greenhouse gases produced throughout an organization's upstream and downstream value chain — from raw material extraction and manufacturing through distribution, product use, and end-of-life disposal. In GHG Protocol terms, these are Scope 3 emissions, and they typically represent the majority of a company's total footprint.
Scope 3 Emissions
Scope 3 emissions are all indirect greenhouse gas emissions that occur in an organization's value chain — both upstream (suppliers, purchased goods, business travel, employee commuting) and downstream (product use, end-of-life treatment, investments). Scope 3 typically represents 70–90% of a company's total carbon footprint.
Carbon Accounting
Carbon accounting is the systematic process of measuring, recording, and reporting the greenhouse gas (GHG) emissions produced by an organization, product, or activity. It follows standardized methodologies — most commonly the GHG Protocol — to quantify emissions across Scope 1 (direct), Scope 2 (purchased energy), and Scope 3 (value chain) categories, producing an auditable inventory that underpins disclosure, reduction planning, and regulatory compliance.