Carbon Border Adjustment Mechanism (CBAM)
CBAM is a trade policy instrument that places a carbon price on imports of certain carbon-intensive goods, preventing carbon leakage by equalising the carbon cost between domestic and imported products.
What is Carbon Border Adjustment Mechanism (CBAM)?
The EU’s Carbon Border Adjustment Mechanism (CBAM) entered its transitional phase in October 2023, with full implementation from January 2026. It requires importers of cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen to purchase CBAM certificates corresponding to the embedded emissions in their imports, minus any carbon price already paid in the country of origin.
CBAM addresses carbon leakage by ensuring that imported goods face the same carbon cost as goods produced within the EU under the EU ETS. This removes the competitive disadvantage faced by EU producers who pay carbon costs, and reduces the incentive to relocate production to unregulated jurisdictions.
The UK is developing its own CBAM, announced in December 2023 with implementation planned for 2027. The UK CBAM is expected to cover similar products and work in conjunction with the UK ETS. For UK businesses importing carbon-intensive goods from countries without equivalent carbon pricing, CBAM will add a new cost that incentivises sourcing from lower-carbon suppliers.
Practical Examples
A UK steel distributor importing from a country without carbon pricing faces an additional CBAM cost of approximately £50–100 per tonne of steel, making UK-produced low-carbon steel more competitive.
A cement importer begins requesting emissions data from its non-EU suppliers during the CBAM transitional reporting phase, identifying suppliers with lower carbon intensity.
A manufacturer evaluates whether to nearshore its aluminium supply chain to the UK or EU, where carbon costs are already internalised, to avoid CBAM surcharges on imports.
How Climatise Helps
Climatise helps organisations understand their CBAM exposure by calculating the embedded emissions of imported goods and modelling the cost impact under different carbon price scenarios.
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