The Carbon Border Adjustment Mechanism (CBAM) explained

What is the CBAM

The Carbon Border Adjustment Mechanism (CBAM) is an environmental policy instrument that aims to impose carbon costs on imported products equivalent to those faced by production facilities operating within the European Union (EU). CBAM is designed to prevent "carbon leakage" scenarios, where companies relocate their production to countries with laxer climate objectives.

Which goods are affected by CBAM?

CBAM focuses on imports of precursors, intermediate products, whose production is carbon intensive and at high risk of carbon leakage. Six sectors have been identified as relevant:

Finished goods, such as bikes or screwdrivers, are excluded from the regulation. CBAM Annex I specifies which input materials each sector should consider as precursors. The common nomenclature code (CN code) determines whether a good ultimately falls under the new regulation. You can find the list of CN codes in scope here under tab c_CodeLists.

Who is responsible for the reporting to CBAM?

The person who declares the importation of relevant goods inherits the CBAM reporting responsibility. This is typically the importer of goods but it can also be an indirect customs representative (e.g. when the importer is established outside of the European Union).

Customs will inform importers of CBAM goods of their reporting obligations at the moment of import.

What is the CBAM time frame?

1. Transitional Period

The regulation will be rolled out in a sequenced process, with the first transitional period starting on 01 Oct 2023 and lasting until the end of 2025. During this introductory period, the importer of affected goods shall submit a CBAM report on a quarterly basis (the first report covering Oct-Dec 2023 is due on 31 Jan 2024). No financial adjustments need to be paid for embedded emissions during this learning phase but significant fines may be imposed in case of non-compliance (e.g. not submitting a quarterly report).‍

2. Operational system

As of January 2026, a fully operational system is planned, in which reporting frequency changes to annually (declaration for the calendar year 2026 should be submitted by 31 May 2027). The report submission will be restricted to approved notifiers and reports will require external verification. Importers will also have to purchase a "CBAM commitment" in the form of allowances for every CBAM good imported into the EU at the average price of the EU Allowances*. The coverage of embedded emissions by the CBAM obligation will gradually increase from 2026 on as free allocation under the EU ETS is gradually phased out. Certificates can be purchased any time, and will be stored in the authorized declarant’s registered CBAM certificate account.

Operators of production facilities in third countries will be able to register in the CBAM registry and to make their verified embedded emissions from production of goods available to authorized CBAM declarants.‍

3. Developed system

As of January 2034, a fully developed system covering all embedded emissions will be effective (declaration for the calendar year 2034 to be submitted by 31 May 2035).

*EU Allowances (EUAs) are a type of carbon allowance that allows companies covered by the EU Emission Trading System (ETS) to emit a certain amount of CO2e. EUAs can be bought and sold on the market, and the variable market price of EUAs reflects the cost of reducing emissions.

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What does CBAM reports should include?

1. Quarterly breakdown of imported precursor quantity by CN codes, country of origin, production facility, and date of import (unlike in carbon accounting practices, the date of import is decisive, not the date of purchase).
2. Embedded direct and indirect emissions of the precursor, including emissions from the production processes (heating, cooling, electricity) as well as those from materials consumed in the production process*.
3. Information about any carbon price that has already been paid in the imported precursor’s country of origin.

*For the first 3 quarters of the transitional period (until 31 July 2024), installations and importers can use default values for up to 100% of their emissions.

The European Commission offers an Excel template that can be used by importers to request emission data from third-country producers of affected goods. Please note that this is a preliminary version subject to possible updates.

How can Cozero support organizations importing affected goods?

Converting activity data into carbon emissions in Cozero Log

There is a major overlap between data relevant to carbon accounting and CBAM reporting. This means that if you already use Cozero for your carbon management, you can also use it as a basis for your CBAM reporting. For example, the purchased quantity of imported production material, the country of its origin as well as the supplier information can be collected in one Log entry. In a next step, GHG emissions are calculated by Cozero and can then be used for your reporting.

Independently group data customized to your needs with Cozero Tags

You can use Cozero's tag system to gather CBAM-relevant logs. Tags are available for any log entries, meaning that you can isolate logs from a desired time period in a few clicks and create a CBAM-ready report.

Decarbonize your journey

You can use the Cozero decarbonization module to simulate the costs and emissions of goods. This can help you simplify purchase decisions. Use Log data to compare the carbon costs of goods covered by the CBAM regulation and goods covered by the EU ETS.

Please do not hesitate to reach out if you have imported goods falling under this new regulation and wish to get support for your CBAM reporting! For more information, we also recommend checking out the European Commission’s dedicated CBAM website where you can find firsthand information.