CBAM Mechanism for Carbon Border Adjustment - Requirements

» Introduction to CBAM and Legal Context

What is CBAM?

The Carbon Border Adjustment Mechanism (CBAM) is a revolutionary regulatory instrument under the European Union’s Green Deal and Fit for 55 Package, designed to support global decarbonisation by placing a carbon cost on imported goods from countries where climate policies may be less stringent than those of the EU. It is not a traditional tariff, but a climate policy tool that reflects the EU Emissions Trading System (EU ETS) cost on imported goods.

Introduced through Regulation (EU) 2023/956, CBAM ensures that the carbon content of goods imported into the EU is subject to a comparable carbon price as domestically produced goods, thereby preventing carbon leakage.

Goals of CBAM

• Level the playing field: Ensure EU manufacturers are not disadvantaged by cheaper imports produced under less strict climate rules.

• Prevent carbon leakage: Discourage EU companies from relocating production to countries with looser emissions regulations.

• Drive global climate ambition: Incentivise foreign producers to adopt lower-carbon technologies and transparent emissions tracking.

• Align with WTO rules: CBAM is structured to remain compliant with international trade rules, as it applies equally to domestic and imported goods.

Phases of Implementation

CBAM is being implemented in two distinct phases:

Covered Products in CBAM Scope

The mechanism currently applies to the following sectors:

• Iron and steel: including raw materials, intermediate products (e.g., coils, billets), and finished products

• Cement: in all forms

• Aluminium

• Fertilisers: including ammonia and nitric acid

• Hydrogen

• Electricity: imports from non-EU producers

These products were chosen based on their:

• High embedded emissions

• High risk of carbon leakage

• Trade exposure outside the EU

Core Legislative Instruments

CBAM implementation is governed by three central legal texts:

1. Regulation (EU) 2023/956 – The main CBAM Regulation, establishing the mechanism
2. Implementing Regulation (EU) 2023/1773 – Defines reporting rules during the transitional period
3. Implementing Regulation (EU) 2024/3210 – Lays down technical rules for the CBAM registry, where all declarations and certificates are managed

» EU CBAM Carbon Border Adjustment Mechanism Regulation (EU) 2023/956

The Purpose of CBAM

The Carbon Border Adjustment Mechanism has the following primary objectives:

Alignment with the European Green Deal and Paris Agreement

CBAM is an integral part of the European Green Deal, which aims to:

• Make Europe the first climate-neutral continent by 2050;

• Ensure that no emissions are outsourced to non-EU countries;

• Create green jobs and innovation through industrial decarbonisation;

• Protect EU industry from unfair carbon cost disadvantages.

Paris Agreement Alignment:

CBAM supports the Paris Agreement by:

• Targeting global emissions rather than shifting them;

• Incentivizing climate action outside the EU;

• Promoting carbon pricing as a global standard.

Scope of CBAM: Covered Products and Sectors

CBAM initially applies to imported goods in sectors at high risk of carbon leakage due to:

• High greenhouse gas intensity;

• Strong international competition.

These include the following categories (Annex I of the Regulation):

Definition of Embedded Emissions

Embedded emissions refer to the direct greenhouse gas emissions released during the production of goods, including:

• CO₂

• N₂O (nitrous oxide)

• PFCs (perfluorocarbons)

Key rules:

• Only direct emissions (from production processes) are covered in the initial phase.

• Indirect emissions (from electricity used during production) may be included in future phases.

• Emissions must be quantified per tonne of imported goods (e.g., tCO₂/tonne of steel).

• Standardised default values may be used where actual data is unavailable.

• Producers may submit verified emissions declarations, or importers may use:

  • EU default values

  • Benchmark data

  • Best available technology references

The CBAM Transition Period (1 October 2023 – 31 December 2025)

The transition period serves as a testing and learning phase with no financial obligation.

Main objectives:

• Allow importers, authorities, and producers to adjust to the system;

• Collect accurate emissions data for future benchmarking;

• Test the reliability and usability of the CBAM transitional registry.

Key obligations during this period:

Quarterly CBAM Reports Must Include:

• Quantity and CN codes of imported goods;

• Country of origin;

• Production facility information;

• Actual or estimated embedded emissions;

• Emission calculation methodology used.

Reports must be submitted no later than 1 month after each quarter ends.

Reporting Obligations for Importers

Who must report?

Any importer bringing covered goods into the EU customs territory from non-EU countries.

This includes:

• Importers acting on their own behalf;

• Customs representatives (if authorised to act as declarants);

• Indirect representatives, depending on the agreement.

What must be reported?

The Full CBAM System (Starting 1 January 2026)

From 2026, CBAM moves from transitional reporting to a fully operational system requiring:

• Authorised CBAM declarants to be registered;

• Purchase and surrender of CBAM certificates;

• Annual reporting of actual embedded emissions;

• Verification by accredited third parties.

This phase aligns more closely with the EU ETS in terms of:

• Scope and stringency;

• Pricing mechanism;

• Monitoring and enforcement.

Authorisation of CBAM Declarants

From 2026 onward, only authorised CBAM declarants may import CBAM-covered goods into the EU.

Application Requirements:

To be approved, applicants must:

• Be established in a Member State;

• Have an EORI number (Economic Operators Registration and Identification);

• Demonstrate financial and operational capacity;

• Not be subject to serious customs or tax violations.

 Applications are submitted to the national Competent Authority, who must decide within 15 working days.

Declarant Responsibilities:

• Maintain records for at least 4 years;

• Submit verified annual reports;

• Purchase and surrender CBAM certificates;

• Cooperate with audits and verifiers;

• Notify any change in company structure, imports, or production sources.

Verification of Embedded Emissions

Starting 2026, all reported emissions must be verified by independent accredited verifiers.

Verification Requirements:

Verifiers must assess:

• Correctness of the emission calculation;

• Consistency with approved methodology;

• Use of accurate emission factors;

• Integrity of monitoring processes.

 The Verifier Report must:

• Be issued before 31 March of the following year;

• Be attached to the annual CBAM declaration;

• Certify emissions down to the installation level.

Acceptable Verification Methods:

• ISO 14064-3:2019 (greenhouse gas validation and verification);

• EU ETS-compliant methodologies;

• Any equivalent method accepted by the EU Commission.

Accreditation and Supervision of Verifiers

Accreditation Bodies:

Each Member State shall designate a national accreditation body in accordance with Regulation (EC) No 765/2008.

Accreditation Criteria:

Verifiers must demonstrate:

• Technical competence in GHG emissions;

• Impartiality and independence;

• Experience with similar industrial sectors;

• Structured internal quality systems.

Accreditation is valid for 5 years and renewable upon successful audit.

Supervision and Withdrawal:

Accreditation bodies must:

• Perform regular reviews of verifier performance;

• Investigate complaints or irregularities;

• Suspend or withdraw accreditations where misconduct or errors are found.

Verifiers must:

• Maintain neutrality;

• Avoid conflicts of interest (e.g. also being the importer);

• Inform authorities of any issues in the verification process.

» Amending Regulation (EU) 2023/956 to Strengthen and Simplify the Carbon Border Adjustment Mechanism (CBAM)

Purpose and Context of the Amendments

Regulation (EU) 2025/2083 was adopted to address implementation gaps and burdens identified during the CBAM transitional period (October 2023 – December 2025). Based on data collected via quarterly reports and consultation with stakeholders (especially the CBAM expert group), the amendments aim to:

• Simplify compliance for smaller importers.

• Strengthen enforcement tools.

• Enhance legal clarity.

• Ensure 99% of embedded emissions remain within CBAM’s scope

New Article 2a: De Minimis Exemption

A new exemption for low-volume importers is introduced under Article 2a:

• If an importer’s cumulative annual imports of CBAM goods remain below the “single mass-based threshold” of 50 tonnes, they are exempt from all CBAM obligations for that calendar year.

• The exemption applies per importer, per year, and includes all CN codes listed in Annex I across the sectors of iron and steel, aluminium, fertilisers, and cement.

• Importers must declare their exemption in customs documentation.

• The threshold does not apply to electricity or hydrogen imports.

Dynamic Adjustment:

• The Commission will annually assess whether the exemption still covers no more than 1% of total embedded emissions.

• If the deviation exceeds 15 tonnes, the threshold will be adjusted via delegated acts, effective the following year, based on the methodology in Annex VII.

Clarifications on Electricity and Hydrogen

• Imports of electricity or hydrogen are excluded from the de minimis exemption due to:

  • Different emission patterns,

  • Complex trade structures,

  • High potential emissions impact.

• Imports from continental shelves or EEZs (Exclusive Economic Zones) are considered to originate in the relevant Member State or third country, ensuring uniform treatment.

Changes to Definitions (Article 3)

• The definition of “importer” is expanded to include cases under simplified customs procedures where only a bill of discharge is submitted (per Article 175(5) of Delegated Regulation (EU) 2015/2446).

• This ensures complete coverage of CBAM obligations across all import mechanisms.

Adjustments to CBAM Certificate Management

• The quarterly minimum holding of CBAM certificates is reduced from 80% to 50% of embedded emissions.

• CBAM certificates must be surrendered by 30 September of the year following import.

• Unused certificates are cancelled automatically—no end-of-day data exchange is needed between platforms.

• CBAM certificate prices sold in 2027 will reflect EU ETS allowance prices in 2026.

New Rules for Authorised and Non-Authorised Importers

• Importers expecting to exceed the 50-tonne threshold must apply for authorised CBAM declarant status in advance.

• Temporary imports in 2026 are permitted if applications are submitted by 31 March 2026. If the application is rejected, importers become liable for penalties.

Expanded Role of Indirect Customs Representatives

• Indirect representatives must obtain CBAM authorisation before acting on behalf of an importer.

• If an importer exceeds the 50-tonne threshold, all representatives involved must:

  • Submit CBAM declarations,

  • Surrender certificates,

  • Be held accountable for compliance failures.

Penalty Liability:
Indirect representatives are liable only if they have agreed to act as authorised CBAM declarants. Otherwise, they are not penalised.

Changes in Reporting Requirements and Deadlines

• CBAM declarations must be submitted annually by 30 September.

• Delegation to third parties is now permitted, provided the third party:

  • Is based in the EU,

  • Has a valid EORI number.

Verification, Emissions Boundaries, and Precursor Exclusions

• Certain downstream emissions (e.g. steel/aluminium finishing processes) are excluded from embedded emission calculations if not covered under the EU ETS.

• Emissions of precursors (e.g., raw materials) already subject to the EU ETS or linked systems are not counted again for complex goods.

Carbon Price Deduction Adjustments

• Declarants may deduct carbon prices paid in third countries.

• The Commission may publish default annual carbon prices (in €/tCO2e) where actual data is not accessible.

• Deductions apply only if:

  • Using actual verified emissions (not defaults),

  • The carbon price was effectively paid, even if in a third country other than the origin.

Registry Access, Operators, and Verifiers

• Third-country operators and their parent companies may access the CBAM registry to input or verify data.

• Accredited verifiers can access the registry upon operator request.

• Operators must provide company or activity registration numbers for identification.

Annex Revisions and Technical Clarifications

• Annex I: Excludes non-calcined kaolinic clays from CBAM due to their low carbon content.

• Annex II: Electricity is now included among goods where only direct emissions are counted.

• Annex IV: Default values for countries without reliable data are based on the average emissions of the 10 most carbon-intensive exporting countries.

Fees and CBAM Platform Financing

• CBAM platform operation will be funded via fees paid by authorised CBAM declarants.

• During the first procurement cycle, the EU budget will pre-finance the platform.

• Delegated acts will determine:

  • Fee structures and levels,

  • Mechanism for assigning fee revenues to the Union budget.

Delegated Acts and Commission Authority

• The Commission receives power to adopt delegated acts on:

  • Adjusting the single mass-based threshold,

  • Defining fees,

  • Setting technical adjustments, e.g., to Annexes.

• Delegated acts will follow the Better Law-Making principles, ensuring equal participation and expert consultation.

Penalties, Enforcement, and Exceptions

• Importers that exceed the threshold without authorisation are liable under Article 26(2a).

• Penalty payment replaces the obligation to submit CBAM declarations or surrender certificates for that year.

• Where the threshold is exceeded by <10%, or the importer was awaiting authorisation, reduced penalties may be applied.

» Commission Implementing Regulation (EU) 2023/1773: CBAM Transitional Reporting Rules

This regulation is one of the most crucial components of the CBAM framework because it sets the rules and procedures for emissions reporting by importers during the transitional period (October 2023 – December 2025). It is intended to provide the European Commission and stakeholders with time to prepare for the full implementation of CBAM in 2026.

The regulation is legally based on Article 35(7) of the CBAM Regulation (EU) 2023/956 and is divided into multiple chapters and articles which define the reporting architecture, methodological principles, and IT infrastructure that support early CBAM compliance.

Purpose and Legal Basis

The aim of Regulation 2023/1773 is to:

• Establish reporting obligations for importers and customs representatives.

• Define the structure of data that needs to be collected and submitted.

• Introduce the CBAM Transitional Registry, a digital tool used for compliance during the transitional period.

• Outline how embedded emissions should be calculated and reported.

• Define enforcement mechanisms and provide temporary derogations where full compliance is difficult due to limitations in third-country data availability.

Key Reporting Obligations for Importers

Who must report?

The regulation identifies the following as “reporting declarants”:

• Importers: Any person lodging a customs declaration in their own name.

• Authorised filers: Persons holding authorisation to lodge customs declarations (e.g., large trading companies or service providers).

• Indirect customs representatives: Required when importers are based outside the EU or when they accept CBAM responsibility.

When must reporting occur?

• Reports must be submitted quarterly via the CBAM Transitional Registry.

• First report: by 31 January 2024, covering imports from Q4 2023.

• Final report: by 31 January 2026, covering Q4 2025.

What must be reported?

Each CBAM quarterly report must include:

1. Quantity of goods imported:
   • Electricity: Reported in megawatt-hours (MWh)
   • All other goods: Reported in tonnes
2. Product classification:
   • Goods must be identified via their Combined Nomenclature (CN) code
3. Country of origin
4. Details of the production installation:
   • UN/LOCODE for the location
   • Facility name and address (also transcribed into English)
   • Geographic coordinates of the main emission source
5. Production method used:
   • Technology employed
   • Key process parameters (e.g., types of furnaces or chemical reactions)
6. Direct embedded emissions (kg CO₂e/tonne):
   • Based on either real data or default values
   • Includes emissions from fuel combustion, chemical processes, etc.
7. Indirect embedded emissions:
   • Resulting from the electricity consumed during production
   • Includes electricity mix used, emission factors, and grid source
8. Emission factors used:
   • Must indicate whether actual values or Commission default values are used
9. Optional: Steel-specific data:
   • Identification number of the steel mill (if known)

Emission Calculation Methodologies

Accurately determining embedded emissions is the core of the CBAM reporting requirement. This section of the regulation sets out which methods are permitted and how they relate to existing EU ETS rules.

Direct Emissions Calculation

Two primary methodologies are allowed:

1. Activity-Based Calculation
   • Emissions from source streams (fuel, raw materials) are calculated based on:
     • Activity data (e.g., fuel consumed, raw material input)
     • Emission factors (laboratory analyses or standardised EU values)
2. Continuous Emissions Monitoring Systems (CEMS)
   • Measures emissions directly from the flue gas
   • Requires advanced instrumentation and data reporting tools

Transitional Method Flexibility (Until 31 Dec 2024)

Until the end of 2024, alternative methodologies may be used if they provide equivalent coverage and accuracy.

Eligible alternative methods include:

• Data from a carbon pricing scheme in the third country

• Emissions data from a mandatory reporting scheme

• Internal monitoring systems (e.g., GHG emissions reduction projects)

Indirect Emissions Calculation

For electricity used during production, the declarant must report:

• Electricity consumed (in MWh) per tonne of goods

• Emission factor used for the electricity (kg CO₂e/MWh)

• Total indirect embedded emissions (kg CO₂e/tonne)

Options for determining the emission factor include:

• Actual data provided by the installation operator

• Commission’s default values (where available)

The average emission factor of the EU grid is not allowed to be used for reporting.

Documentation and Supporting Evidence

Declarants are encouraged to use electronic templates provided by the Commission to gather emissions data from producers. These templates ensure:

• Standardisation across Member States

• Easier review by customs authorities

• Audit trail for future verification

Derogations and Flexibility Measures

The European Commission recognises that not all third-country producers have the infrastructure, monitoring systems, or regulatory frameworks in place to generate emissions data equivalent to EU standards. Therefore, this regulation includes a number of temporary derogations and fallback options designed to provide flexibility during the transitional period, particularly up to 31 December 2024.

Temporary Derogation Mechanisms

Declarants may use alternative approaches when:

• They are unable to obtain verified actual emissions from producers;

• The producer is in a third country with a mandatory carbon pricing or reporting system;

• A producer monitors emissions for internal reduction programs (e.g. voluntary GHG programs or corporate ESG tracking).

These alternatives are temporarily valid only until 31 July 2024 for indirect emissions and 31 December 2024 for direct emissions.

Use of Default Values

Where actual emissions data is not available, default values may be used. These values:

• Are published by the European Commission;

• Represent average or conservative estimates of emissions for specific product types;

• Can only be used when the reporting declarant can justify the inability to collect actual data.

The default values act as a compliance safety net, not a permanent solution. Their usage will be monitored and reported.

Exceptions for Minor Production Steps

Certain stages of production that contribute <20% of total direct embedded emissions may be reported using estimated values, such as:

• Final shaping or coating of steel or aluminium;

• Mixing and packaging stages in fertiliser production.

This exemption is especially important for downstream products, and allows declarants to avoid exhaustive data collection for minor process steps.

Data Quality and Verification

While formal third-party verification is not mandatory during the transitional period, the regulation requires:

• Complete traceability of data sources;

• Full transparency regarding whether the data is actual, estimated, or derived from defaults;

• Use of the Commission’s structured reporting templates to ensure consistency.

Requirements for Supporting Documentation

Each CBAM report should be accompanied by:

• Documentation showing how the emissions were calculated;

• Identification of the installation and production routes;

• Details of the data source and methodology used.

If derogations or alternative methods are used, the declarant must also include:

• Justification for using a fallback approach;

• Evidence of the third-country regulatory framework (if applicable);

• Estimation approach and emission factors used.

Quality Criteria

The CBAM reports must meet the following minimum quality standards:

• Completeness: All data fields must be filled (unless justified).

• Transparency: Source and method of each emission factor must be clearly described.

• Consistency: Same methodology must be used throughout the reporting period, unless a change is justified and documented.

• Accuracy: Values must reflect best available data — conservative estimates preferred if uncertainty exists.

These standards are based on the EU ETS Monitoring and Reporting Regulation (MRR), ensuring that CBAM aligns with existing EU compliance norms.

Penalties for Non-Compliance

Although the transitional period does not involve financial payments, failure to report emissions data or providing incorrect reports is still subject to penalties under this regulation.

Enforcement Triggers

Penalties may be imposed in the following situations:

1. Failure to submit a quarterly report;
2. Submission of incomplete or unverifiable data;
3. Misuse of derogations or use of outdated emission factors;
4. Consistent low-quality reporting, suggesting negligence or intent.

Penalty Structure

The regulation introduces an indicative range of penalties, designed to align with:

• Article 16(3) and (4) of Directive 2003/87/EC (EU ETS);

• The proportionality principle (i.e., penalty severity depends on extent and duration of non-compliance).

Key penalty characteristics:

Each Member State is responsible for determining exact penalty amounts under their national enforcement frameworks, within the boundaries set by the Commission.

CBAM Transitional Registry

At the heart of transitional CBAM compliance is the CBAM Transitional Registry — a central electronic database developed and operated by the European Commission.

Functions of the Registry

The registry is designed to:

• Collect and store all CBAM quarterly reports;

• Facilitate declarant onboarding and role-based access;

• Ensure interoperability with customs systems, such as:

  • TARIC (EU customs tariff system)

  • Surveillance 3 (SURV3)

  • EORI (Economic Operator Identification)

• Allow for report reviews, error flagging, and data analysis.

Access and User Management

Access to the registry is governed by:

• UUM&DS (Uniform User Management & Digital Signature) framework;

• Role-based login permissions for:

  • Declarants

  • Customs authorities

  • Commission officials

Declarants may delegate access to agents or intermediaries (e.g., customs brokers), but remain legally responsible for all data submitted.

Business Continuity and System Failover

The regulation mandates that:

• A CBAM Business Continuity Plan must be in place;

• In case of system failure, alternative offline methods for submitting reports must be made available;

• Declarants must keep local backups of submitted data.

Data Protection Rules

The registry must comply with:

• EU Regulation 2018/1725: Data protection rules for EU institutions;

• GDPR (Regulation 2016/679): Applicable for private entities submitting data;

• Data retention policy: 5 years from the date of report submission;

• Purpose limitation: Data can only be used for CBAM and customs verification purposes.

All personal and corporate data must be encrypted, stored securely, and processed in line with strict EU rules.

» Commission Implementing Regulation (EU) 2024/3210: CBAM Registry Implementation

This regulation, adopted on 18 December 2024, is the second major implementing act under the CBAM legislative framework and provides the technical foundation for the digital infrastructure of CBAM. It lays down how the CBAM Registry — the core online platform where declarations, certificates, and compliance information will be managed — must function, be secured, and interact with other systems.

It builds upon the Transitional Registry introduced in Regulation (EU) 2023/1773 but goes further to formalise the permanent, operational system that will be used from 1 January 2026 onwards.

Technical Foundation of the CBAM Registry

The CBAM Registry is defined as a standardised, secure, centralised electronic system at Union level, used for:

• Issuing, holding, transferring, and surrendering CBAM certificates;

• Managing annual CBAM declarations submitted by authorised declarants;

• Registering and approving authorised CBAM declarants;

• Registering installations and operators in third countries;

• Facilitating interactions with CBAM verifiers;

• Supporting risk analysis, monitoring, and anti-circumvention controls.

In essence, the CBAM Registry will serve as the backbone infrastructure of the entire CBAM system.

Key Components

• User Interface (UI) for declarants and authorities;

• Data Storage Module for historical declarations, certificates, and emissions data;

• Verification Tools for automated data cross-checking;

• Audit Logging System to ensure traceability;

• Dashboard for Commission and national authorities to monitor activity.

Data Handling and System Security

The regulation includes strong provisions to ensure data integrity, confidentiality, and security.

Data Protection Requirements

The CBAM Registry must comply with:

• Regulation (EU) 2016/679 (GDPR) – for economic operators

• Regulation (EU) 2018/1725 – for EU institutions

• Article 33 of Regulation 2018/1725 and Article 32 of GDPR – on security of processing

Key Safeguards

• Data must be encrypted at rest and in transit;

• Personal and commercially sensitive data can only be accessed by authorised roles;

• Audit trails must be maintained for every transaction (e.g., certificate surrender, account updates);

• The system must follow privacy-by-design and by-default principles (Article 25 GDPR, Article 27 Reg. 2018/1725).

Data Retention

• Data stored for a maximum of 5 years from the date of submission;

• After expiry, records must be anonymised or securely deleted.

This ensures alignment with EU-wide data handling and retention best practices, fostering trust among global partners.

Interoperability with EU Customs and Surveillance Systems

To streamline compliance and avoid duplication, the CBAM Registry must be interconnected with key EU IT systems used for customs and environmental regulation.

Connected Systems:

CBAM Declarants and Verifier Management

The Registry enables detailed management of authorised CBAM declarants and CBAM verifiers.

Authorised CBAM Declarants

These are the only entities allowed to import CBAM-covered goods after 1 January 2026. The Registry:

• Receives applications for authorised status;

• Verifies identity and eligibility;

• Assigns CBAM accounts linked to EORI numbers;

• Tracks certificate purchases and usage;

• Allows suspension, revocation, or reactivation of status.

CBAM Verifiers

Verifiers must be:

• Independently accredited by national accreditation bodies;

• Registered in the CBAM Registry;

• Responsible for validating emissions data used in annual declarations;

• Subject to oversight and quality audits by the Commission.

The verifier role is critical for trustworthiness and credibility of CBAM compliance data.

Registry Access and Identity Verification

Access Management

Access to the Registry is controlled through the UUM&DS (Uniform User Management and Digital Signature) framework, which:

• Authenticates users using digital certificates;

• Assigns granular roles (e.g., viewer, editor, verifier, customs officer);

• Allows delegation of access to third-party agents (e.g. customs brokers or consultants);

• Logs every action by every user for full auditability.

Key Access Roles:

Adaptation Notice under the Carbon Border Adjustment Mechanism (EU CBAM)

This text has been adapted in accordance with the guidelines set forth by the Carbon Border Adjustment Mechanism (EU CBAM). In our efforts to ensure transparency, accountability, and alignment, we have carefully reviewed and incorporated EU CBAM principles into the content. This adaptation process reflects our commitment to high-quality, accurate, ensuring that the information presented adheres to internationally recognized standards.