Navigating CBAM: A Comprehensive Update for EU Importers and Global Exporters
The EU Carbon Border Adjustment Mechanism (CBAM) is moving from the transitional phase to full implementation in 2026, marking a major milestone for global exporters and EU importers. Companies producing affected commodities designated for import to EU countries must streamline data collection, transition from default to actual values and verified greenhouse gas (GHG) emissions, and adopt CBAM-approved methodologies.
Starting this year, the new CBAM Registry portal allows for the streamlining of reporting, and EU importers and installation operators will be able to apply to become authorized CBAM declarants in preparation for the mandatory purchase and surrender of CBAM certificates to the European competent authorities.
For producers outside the EU and EU importers, collecting data in the correct and appropriate formats from all production facilities has been harrowing at best, and navigating the regulation remains an ongoing challenge. As compliance with the regulation moves towards full implementation, many questions remain.
In this blog, the SCS Global Services and SCS Consulting Services teams in Europe answer some of the toughest questions about the CBAM legislation and its implications for EU importers and global exporters. We also unpack major components and technicalities of CBAM and cover essential updates for businesses navigating the evolving landscape of international trade and environmental regulations.
A brief overview of CBAM
Through CBAM — originally introduced in 2020 as part of The European Green Deal — the EU aims to confront the realities of carbon leakage. Recognized as a byproduct of industrial manufacturing, carbon leakage occurs when products or parts of products made in countries with less strict emissions regulations are imported to countries with more stringent climate laws.
CBAM acts as a legislative framework designed to prevent carbon leakage and promote global decarbonization by aligning the carbon pricing of imported goods with the EU's own carbon pricing mechanisms. CBAM targets carbon-intensive sectors such as iron and steel, aluminum, cement, fertilizer, electricity, and hydrogen. It requires EU importers to report and eventually purchase and surrender CBAM certificates corresponding to the carbon content of their imported goods, effectively mirroring the EU Emissions Trading System (ETS) for imports.
Most importantly, the legislation aims to level the playing field between domestic producers who bear the costs of carbon emissions and foreign producers, thereby encouraging the adoption of carbon reduction strategies globally.
What does the EU Emissions Trading System (ETS) have to do with CBAM?
CBAM functions essentially to extend the ETS to non-EU countries, leveling the playing field in terms of how much it costs to emit GHGs. ETS is considered the cornerstone of the EU’s policy to tackle climate change by reducing GHG emissions within the EU in a cost-effective and economically efficient way based on the cap-and-trade principle. CBAM is grounded in the ETS but targets producers inside and outside the EU.
ETS sets a cap on carbon dioxide (CO2) emissions, requiring certain industries to secure permissions to emit this greenhouse gas. Through a cap-and-trade system, companies cannot simply emit CO2 — they must pay, at least in part, to emit it. A cap is the maximum amount of CO2 allowed from all the sectors under ETS within a certain year. And this cap is decreasing over time. We can understand the ETS’s cap-and-trade approach as influencing emissions through the price that companies must pay to emit CO2 — meaning, the price companies pay per tonne of CO2 equivalent (CO2e) can increase, thus disincentivizing CO2 emissions.
CBAM aims to ensure that companies inside the EU, which are subject to the ETS and its carbon costs, are not placed at a competitive disadvantage compared to foreign companies — whose products might otherwise be unaffected by such costs.
In the present transitional period (2023-2025), authorities do not impose any penalty fees — for instance, if a producer does not submit the actual values from last year. In the definitive period (beginning 2026), the cost per tonne of CO2e is €100 Euros — plus importers must pay for any underreported values of CO2.
Under the ETS, some industries were previously granted free allowances to avoid carbon leakage, which shielded them from the full cost of emissions. Once fully rolled out, though, CBAM will gradually phase out these free allowances. At that point, CBAM will take over as the mechanism to protect EU industries from carbon leakage.
What are CBAM certificates, and how are they going to change?
One CBAM certificate represents one tonne of CO2e. Producers and importers must buy CBAM certificates to submit to the competent authorities, acknowledging the imported CO2 amount. In 2026, if that fee is 2.5%, for instance, producers will pay that corresponding amount.
Importers must purchase CBAM certificates based on the actual carbon content and GHG emissions embedded in the goods they plan to import to the EU. Embedded emissions include direct and indirect emissions from production facilities and also account for precursor emissions when CBAM goods are used as inputs.
Precursors refer to production facilities utilizing a CBAM good as an input to produce another CBAM good. For example, unwrought aluminum could be used in additional manufacturing steps within an installation facility. These CBAM-affected inputs are identified as precursors. The product resulting from that installation is deemed a complex good, as it involves at least two levels or tiers of CBAM goods.
Relative to CBAM certificates, the GHG emissions associated with complex goods are included as embedded emissions.
CBAM certificates are not like ETS certificates and can only be purchased from the competent authorities. Companies cannot buy them from auctions or from previous years, and the certificates are valid only for two years. ETS certificates, on the other hand, are valid indefinitely — so long as they were issued after 2013.
Currently, producers can report actual or default GHG values, but this requirement may change in the future. During the transitional period, which will end this year, the reporting is done quarterly. No CBAM certificates are required today, so importers do not currently have to pay. Once the definitive period begins as of January 1, 2026, importers will have to pay based on the phase-out of free allowances under ETS. Also during the definitive period, these calculations will be mandatory and must be verified annually. These verifications — according to the current rules — must be completed for installations abroad as well as importers that are declaring CBAM goods in the EU.
Even though CBAM is still within the transitional period, authorization to import CBAM-affected goods into the EU is required. Authorization must be obtained by applying to the competent authorities, and penalties during the transitional period range between €10-50 per tonne of CO2e. Once the definitive period begins, this penalty will increase to €100 per tonne of CO2e — and as we mentioned in the section regarding ETS, importers will have to pay for any underreported values of CO2e.
What should we expect from CBAM in 2025 — and what’s coming in 2026 and beyond?
CBAM is being implemented in phases, starting with a transitional period (2023-2025) where reporting is required but no CBAM certificates need to be purchased. During this period, importers must provide accurate quarterly reports on the carbon content of their imports, using either default or actual values.
For all companies importing goods in the iron and steel, aluminum, electricity, cement, hydrogen, and fertilizer sectors, the first quarterly reports during the current transitional phase were to be submitted by January 31, 2024, to the CBAM Transitional Registry.
But as of January 2026 — when the new CBAM implementation enters the ‘definitive’ period with tariffs administered — all importers will be required to submit reports based on the actual embedded emissions calculated by their suppliers. For many manufacturers that have never completed a carbon footprint, this can pose significant challenges.
From 2027, importers will need to submit annual declarations and purchase CBAM certificates — and will face penalties for non-compliance. The legislation also considers carbon prices paid in the country of origin, allowing for adjustments based on existing carbon pricing mechanisms outside the EU.
As of late February 2025, the EU is considering a rule that exempts importers of less than 50 tonnes from reporting emissions under the CBAM. This change would aim to simplify this mechanism for fairer trade and include the following clarifications:
- Exempting small importers, mostly SMEs and individuals, that bring in minimal quantities of CBAM goods and embedded emissions, this new annual threshold of 50 tonnes per importer removes obligations for about 182,000 importers while still covering over 99% of in scope emissions.
- Simplifying rules for companies under CBAM: authorization of declarants, calculation of embedded emissions, and reporting requirements.
- Strengthening rules to prevent circumvention and abuse, making CBAM more effective long term.
A future extension of CBAM to other ETS sectors and downstream goods is planned with new legislative proposals expected in early 2026.
GHG emissions reporting: What does it mean to move from default values to actual values?
Reporting GHG emissions — both within the transitional phase and then the definitive period in January 2026 — is the keystone of the CBAM legislation.
Default values are estimated and generalized amounts of GHG emissions based on the type of product. Default values are also listed and provided by the EU to producers and importers.
Actual values refer to the real input and output of GHG emissions from a specific production facility. These emissions must be measured and verified using EU methodology. Actual values must also be verified by an accredited body from the EU and be part of a larger monitoring, reporting, and verification system.
CBAM reporting involves quarterly submissions during the transitional period ending in 2025, shifting to annual reports in the definitive period starting in 2026. Right now (March 2025), importers can report real or actual GHG emissions but will need to be prepared to report actual values beginning in the definitive period. The definitive period also marks when importers must be prepared to buy and surrender CBAM certificates based on actual carbon content and emissions. Registration and reporting of CBAM certificates are done through the CBAM Registry.
Why would a producer or importer want to use actual values during the transitional period? Isn’t that just more work?
To answer this question, let’s consider the actual versus default values for unwrought aluminum, a commodity subject to CBAM regulations.
If a producer or importer uses the product carbon footprint tool, for instance, to calculate actual GHG emissions associated with this product — which, in this case would be a cradle-to-gate scenario — the actual value is 4.29 CO2e per tonne. But the default value during the transitional period comes in at more than twice that amount — 10.49 CO2e per tonne.
In this example, we see that the actual value — the one that is determined through a proper assessment tool such as product carbon footprint — is significantly lower than the default value listed by the EU. So, while using default values might be less administrative work, it will not always be less expensive per tonne.
The current legislative proposal suggests removing limits on the use of default values. Actual values can be used, but default values could be employed indefinitely. This will be specific to each country and will be updated regularly by the European Commission.
Additionally, this year the EU will be issuing region-specific values; a product coming from India will have a specific value and another coming from China will have a different value, and so on. Again, these added technicalities can spur producers and importers to seek verifiable measurements of their GHG emissions not only to ensure accurate reporting, but also to diminish the added operational vulnerabilities associated with relying on ever-changing default GHG values.
How do I reconcile CBAM reporting and connect multiple chains of suppliers efficiently?
One of the best ways to manage CBAM reporting requirements is to develop a CBAM definitive period roadmap or action plan that reflects current uncertainties and potential changes resulting from pending proposals.
Whether you're an exporter or importer, you can leverage SCS’ expertise to assess suppliers and identify risks and opportunities. We also offer our SCS CBAM Commodity Checker, where we can verify the Combined Nomenclature (CN) codes, or you have the option to upload a file with 1,000 CN codes. (Chapter Two, Article 3 of the CBAM legislation includes an explanation of CN codes and their various applicability.)
SCS can assist with CBAM registration, reporting, and verification. Through a comprehensive tool — the SCS e-Compass Suite™ — we simplify the calculation of values and include automatic error checks across all data entered. This tool ensures accuracy regardless of regional measurement variations, such as different units of mass, volume, and weight. Its robust security features mean users can securely share results with importers and declarants. The Suite provides a detailed overview of production facilities, encompassing production processes, emissions, heat imports and exports, facility data, and reference data. Companies, whether exporters or operators of multiple production facilities, can consolidate all their data in one platform. Additionally, data sharing is facilitated through Excel sheets or XML CBAM reports, which are easily interpretable by computers, thus streamlining the reporting process.
Planning your next CBAM moves
If you have additional questions about the CBAM legislation, be sure to watch our “Navigating CBAM” webinar replay. In that webinar, SCS Consulting and SCS Global Services teams in Europe expand on many of the topics discussed in this blog — plus, we answer audience questions about many other CBAM technicalities.
Need more help than a blog or webinar can offer? Visit our website: https://www.scsglobalservices.com/consulting/services/cbam-advisory-services and get in touch with SCS Consulting today.
