CBAM for Manufacturing

What is CBAM?

The Carbon Border Adjustment Mechanism (CBAM) is a landmark regulation introduced by the European Union to prevent carbon leakage — the practice of relocating production to countries with weaker climate policies to avoid emissions costs. Enacted as part of the EU's "Fit for 55" package, CBAM imposes a carbon price on imports of certain carbon-intensive goods entering the EU market. In effect, it ensures that imported products bear the same carbon cost as those produced domestically under the EU Emissions Trading System (EU ETS), creating a level playing field for European manufacturers while incentivizing global decarbonization.

CBAM and the Manufacturing Industry

The manufacturing sector sits at the very center of CBAM's regulatory scope. The regulation initially targets six categories of goods: iron and steel, aluminium, cement, fertilizers, electricity, and hydrogen. These are among the most carbon-intensive products in global trade, and manufacturing companies that either produce or import them into the EU are directly affected.

Consider a European steel manufacturer competing with imports from a country where carbon pricing does not exist. Without CBAM, the imported steel carries no embedded carbon cost, giving it a significant price advantage. CBAM eliminates this disparity by requiring importers to purchase certificates corresponding to the carbon emissions embedded in their goods, calculated at the same price per tonne of CO2 as the EU ETS allowance.

For manufacturers operating supply chains that span multiple continents, the implications are substantial. A company that sources aluminium billets from a smelter in Southeast Asia, for example, must now account for the embedded emissions of that aluminium when importing it into the EU. Similarly, a fertilizer producer importing ammonia as a precursor chemical must declare the emissions associated with its production abroad.

The regulation does not only affect large industrial conglomerates. Small and medium-sized manufacturers that rely on imported raw materials or semi-finished goods covered by CBAM will also need to adjust their procurement strategies, supplier relationships, and reporting processes. The transitional phase, which began in October 2023, requires quarterly reporting of embedded emissions. The definitive phase, starting in January 2026, introduces the financial obligation to purchase CBAM certificates.

Beyond direct compliance, CBAM creates competitive dynamics that reshape the manufacturing landscape. Companies that have already invested in low-carbon production methods will find their products more competitively priced relative to carbon-intensive imports. Conversely, manufacturers that have delayed decarbonization efforts may face rising input costs as their suppliers pass on the expense of CBAM certificates.

Key Requirements

Manufacturing companies affected by CBAM must understand and comply with several core requirements:

• Registration as an authorized CBAM declarant: Any importer of CBAM-covered goods into the EU must register with the competent national authority. Without authorization, goods subject to CBAM cannot be cleared through customs.
• Quarterly emissions reporting (transitional phase): During the transitional period, importers must submit quarterly CBAM reports detailing the volume of imported goods, the direct and indirect embedded emissions, and the carbon price paid in the country of origin, if any.
• Verification of embedded emissions data: Emissions data must be verified by accredited verifiers. Manufacturing companies need to obtain accurate emissions information from their non-EU suppliers, including specific production data rather than relying solely on default values.
• Purchase of CBAM certificates (definitive phase): From 2026, importers must surrender CBAM certificates equivalent to the embedded emissions of their imports. The certificate price mirrors the weekly average EU ETS auction price. Any carbon price already paid in the country of origin can be deducted.
• Record-keeping and documentation: Companies must maintain detailed records of all CBAM-related transactions, supplier emissions data, verification reports, and certificate purchases for a minimum of four years.
• Supply chain emissions transparency: Manufacturers must establish systems to collect actual emissions data from upstream suppliers. This includes direct emissions from production processes and, for certain goods, indirect emissions from electricity consumption.
• Customs compliance integration: CBAM obligations must be integrated with existing customs procedures. The CN (Combined Nomenclature) codes of imported goods determine whether they fall within CBAM scope, requiring careful classification of all imports.

Implementation Steps for Manufacturing Companies

1. Conduct a CBAM exposure assessment. Map your entire supply chain to identify which imported goods fall under CBAM's scope. Review the CN codes of all materials and components sourced from non-EU countries. Quantify the volume of affected imports and estimate the potential financial impact based on current EU ETS carbon prices.
2. Engage with non-EU suppliers on emissions data. Contact your suppliers in third countries to request actual production emissions data. Provide them with the EU's standardized reporting templates and explain the data requirements. Establish contractual clauses that obligate suppliers to provide verified emissions information on a recurring basis. Where suppliers are unable to provide actual data, understand the financial consequences of relying on default values, which are typically higher.
3. Register as an authorized CBAM declarant. Submit your application to the relevant national authority in the EU member state where you operate or import goods. Ensure all required documentation is prepared, including proof of economic activity, customs identification numbers, and details of the goods you intend to import.
4. Implement an emissions data management system. Deploy software or internal processes to collect, store, calculate, and report embedded emissions data. Integrate this system with your existing ERP and customs management platforms. Ensure the system can handle the granularity required by CBAM, including facility-level emissions data from each supplier and production route.
5. Establish a verification process. Engage an accredited third-party verifier to audit your emissions data before submission. Build internal quality controls to review data consistency, identify anomalies, and resolve discrepancies with suppliers before the verification stage.
6. Develop a CBAM certificate procurement strategy. Analyze your projected certificate needs based on import volumes and embedded emissions. Evaluate whether adjusting your supplier mix — favoring lower-carbon producers — could reduce your certificate costs. Factor CBAM costs into your procurement decisions and product pricing models.
7. Train your compliance and procurement teams. Ensure that staff responsible for customs declarations, procurement, and sustainability reporting understand CBAM requirements. Conduct regular training sessions as the regulation evolves and new implementing rules are published.
8. Monitor regulatory developments and plan for scope expansion. The EU has signaled its intention to expand CBAM to additional product categories over time. Stay informed about proposed amendments and prepare contingency plans for goods that may be included in future phases, such as organic chemicals, polymers, and downstream manufactured products.

Frequently Asked Questions

Does CBAM apply to goods manufactured within the EU?

No. CBAM applies exclusively to goods imported into the EU from non-EU countries. Goods produced within the EU are subject to the EU Emissions Trading System instead. However, EU-based manufacturers are indirectly affected when they source raw materials or components from outside the EU, as those imports may fall under CBAM scope.

What happens if my supplier cannot provide actual emissions data?

If actual emissions data is unavailable, importers must use default values established by the European Commission. These default values are typically based on the average emissions intensity of the exporting country or, in the worst case, on the emissions intensity of the least efficient production processes globally. Since default values tend to be higher than actual emissions for efficient producers, this approach usually results in higher CBAM costs. It is therefore in your financial interest to work proactively with suppliers to obtain verified actual data.

How is the cost of CBAM certificates calculated?

The price of CBAM certificates is determined by the weekly average auction price of EU ETS allowances. As of early 2026, this price fluctuates around 65-75 euros per tonne of CO2 equivalent, though it can vary significantly depending on market conditions. If a carbon price has already been paid in the country where the goods were produced, that amount can be deducted from the CBAM obligation, avoiding double taxation.

Will CBAM expand to cover more products in the future?

Yes. The European Commission is required to assess the feasibility of extending CBAM to additional goods before the end of the transitional period. Products further down the value chain — such as finished steel products, manufactured aluminium goods, and certain chemicals — are strong candidates for inclusion. The long-term objective is to align CBAM coverage with the full scope of the EU ETS, ensuring comprehensive carbon border protection across all carbon-intensive sectors.

Summary

CBAM represents a fundamental shift in how carbon costs are applied to international trade, and the manufacturing industry is squarely in its crosshairs. Companies that act early — mapping their exposure, securing reliable emissions data from suppliers, and integrating CBAM compliance into their operations — will not only avoid regulatory penalties but also gain a competitive advantage in an increasingly carbon-conscious market. The time to prepare is now: the transitional phase is already underway, and the definitive financial obligations take effect in 2026.