The EU Carbon Border Adjustment Mechanism - CBAM - is a groundbreaking climate policy designed to equalise the cost of carbon emission between domestic European goods and imported products. Operating as an extension of the EU ETS, CBAM’s primary goal is to prevent carbon leakage, a risk where EU-based manufacturers move production to countries with weaker climate laws or lose market share to cheaper, highly polluting foreign imports. Having transitioned past its initial reporting stage, it aims to  apply a direct levy on carbon-intensive materials entering the European market, specifically targeting cement, iron, steel, aluminum, fertilisers, electricity and hydrogen. By enforcing an equivalent financial penalty on the CO2 emissions of imported goods, the EU protects its industrial competitiveness while using economic leverage to incentivise cleaner, more sustainable production worldwide.

The regulation entered its definitive compliance phase, meaning business must now account for actual financial liabilities, rather than just submit emissions data. Under this regime, EU importers must track all embedded GHGs from their supply chains, as the first reporting deadline for 2026 imports is set for September 30, 2027, along with the surrender of the required certificates. The cost of these certificates is directly tied the weekly prices of EUA auctions. To prevent double-taxation, the EU allows importers to claim deductions if a verifiable carbon price was already paid in the country of origin. As free emission allowances are gradually eliminated through 2034, the financial weight of CBAM certificates should scale upwards, driving global supply chain decarbonisation.