CBAM for manufacturers: what the EU carbon border tax means for your costs

01What CBAM is and why it exists

EU producers of steel, aluminium, cement and other energy-intensive goods pay for their emissions under the EU ETS. Without an equivalent cost on imports, production could move to countries with weaker climate policies, a risk known as carbon leakage. Until now the EU managed this risk by giving its own producers free emission allowances. The Carbon Border Adjustment Mechanism, set out in Regulation (EU) 2023/956, replaces that protection gradually with a charge on imports, so that imported and domestic goods face a comparable carbon price.

For a buyer, CBAM is an additional cost on covered imports, similar in effect to a duty but calculated on the emissions embedded in the goods rather than on their value.

02Which goods are covered

Coverage is defined by Combined Nomenclature (CN) codes listed in Annex I of the regulation. The Commission has said it will assess extending the scope to more downstream products, so a component that is not covered today may be covered later. Check your CN codes against the current annex.

03Timeline

04How the cost is calculated

The importer must surrender one CBAM certificate for each tonne of CO₂-equivalent embedded in the covered goods it imports, after two adjustments:

1. Free allocation adjustment. As long as EU producers still receive some free allowances, the CBAM obligation is reduced correspondingly. This is what phases the cost in from 2026 to 2034.
2. Carbon price paid abroad. If a carbon price was effectively paid in the country of production, it can be deducted.

The price of a certificate follows the EU ETS auction price.

CBAM cost ≈ embedded emissions (tCO₂e)
          × share of emissions not covered by free allocation in that year
          × EU ETS price (€/tCO₂e)
          − carbon price effectively paid in the country of origin

Embedded emissions should be based on actual data from the producing installation, verified by an accredited verifier. Where actual data is not available, the Commission publishes default values by product and country, which are set conservatively and are usually more expensive than good actual data.

05A simplified example

A machinery manufacturer imports 400 tonnes of steel bars a year from a non-EU mill. Assume embedded emissions of 2.0 tCO₂e per tonne of steel and an EU ETS price of €80 per tonne.

The numbers are illustrative: the free allocation adjustment is applied through product benchmarks, the ETS price moves, and mills differ widely in their emissions. An electric arc furnace using scrap typically has far lower emissions per tonne than a blast furnace route. The direction is clear, though: a cost that is a rounding error in 2026 becomes material by 2030, and in steel it is large compared with typical price differences between suppliers.

06What to do now

• Check your CN codes. List every import that falls under Annex I, including fasteners and other articles that are easy to overlook.
• Check the threshold. If your covered imports stay below 50 tonnes a year, you are exempt, but monitor it, as growth can take you over.
• Get authorised as a CBAM declarant if you are above the threshold, or make sure your customs representative is.
• Ask suppliers for actual emissions data, verified, per installation. Without it you pay on default values.
• Put CBAM in your landed cost. Add the expected cost per tonne for each year to your landed cost model and compare suppliers on it.
• Look at indirect exposure. Even if you do not import steel or aluminium yourself, your EU suppliers who do will pass the cost on. Input-output data helps estimate how much.