CBAM for Retail & Trade

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 less stringent climate policies. Effective in its transitional phase since October 2023, CBAM requires importers of certain carbon-intensive goods into the EU to purchase certificates corresponding to the carbon price that would have been paid if the goods had been produced under EU carbon pricing rules. By placing a fair price on the carbon emitted during the production of imported goods, CBAM ensures that EU climate ambitions are not undermined by imports from regions with lower environmental standards.

CBAM and the Retail & Trade Industry

While CBAM directly targets importers of specific industrial commodities — iron, steel, aluminium, cement, fertilizers, electricity, and hydrogen — its ripple effects across the retail and trade sector are significant and often underestimated. Retailers and trading companies that source products containing CBAM-covered materials face new compliance obligations, increased procurement costs, and the need to fundamentally rethink their supply chains.

Consider a home improvement retailer that imports steel shelving units, aluminium window frames, or iron-based hardware from manufacturers outside the EU. Under CBAM, these imports now carry an embedded carbon cost. A fashion retailer sourcing aluminium zippers, buttons, or packaging components from non-EU suppliers faces similar exposure. Even grocery chains that import fertilizer-dependent agricultural products or use steel and aluminium in their private-label packaging must account for the upstream carbon content of these materials.

The trade sector is particularly affected because it operates at the intersection of global supply chains and EU market access. Wholesale distributors that import CBAM-covered raw materials or semi-finished products for resale within the EU become the designated declarants responsible for reporting and, from 2026 onward, purchasing CBAM certificates. This transforms what was previously a straightforward import transaction into a process requiring detailed knowledge of the carbon intensity of each product's manufacturing process.

Furthermore, CBAM creates competitive dynamics within the retail landscape. Companies that proactively manage their carbon exposure can secure pricing advantages over competitors who are caught unprepared. Retailers with diversified, low-carbon supply chains will be better positioned to absorb or avoid the additional costs, while those heavily reliant on carbon-intensive imports from non-EU countries may face margin pressure that is difficult to pass on to price-sensitive consumers.

Key Requirements

Retail and trade companies affected by CBAM must understand and comply with a specific set of obligations that evolve over time:

• Importer Registration: Any company importing CBAM-covered goods into the EU must register as an authorized CBAM declarant with the relevant national authority. Without this registration, goods subject to CBAM cannot legally clear customs.
• Quarterly CBAM Reports (Transitional Phase): During the transitional period (October 2023 through December 2025), importers must submit quarterly reports detailing the volume of imported goods, the direct and indirect embedded emissions, and any carbon price already paid in the country of origin. These reports must be filed through the CBAM Transitional Registry.
• Embedded Emissions Calculation: Companies must determine the actual carbon emissions embedded in each imported product. This requires obtaining verified emissions data from non-EU producers, including direct emissions from the production process and, for certain goods, indirect emissions from electricity consumption during manufacturing.
• CBAM Certificate Purchases (from 2026): Starting January 2026, importers must purchase CBAM certificates corresponding to the embedded emissions of their imports. The certificate price is linked to the weekly average auction price of EU Emissions Trading System (ETS) allowances, ensuring parity between domestic and imported carbon costs.
• Verification by Accredited Bodies: Emissions data reported by non-EU producers must be verified by accredited verifiers. Retailers cannot simply rely on supplier declarations — independent third-party verification is mandatory.
• Record Keeping: All documentation related to CBAM compliance — emissions data, supplier communications, verification reports, and certificate transactions — must be retained for a minimum of five years and made available to authorities upon request.
• Annual CBAM Declaration: From 2026, authorized declarants must submit an annual declaration by May 31 each year, covering all imports from the preceding calendar year, along with the corresponding CBAM certificates surrendered.

Implementation Steps for Retail & Trade Companies

Preparing for CBAM compliance requires a structured approach. The following steps provide a practical roadmap for retail and trade businesses:

1. Conduct a CBAM Exposure Audit: Map your entire product portfolio and supply chain to identify which imported goods contain CBAM-covered materials. This includes not only finished products made of steel, aluminium, iron, or cement, but also components and packaging materials. Quantify the volume and value of these imports to understand your financial exposure.
2. Engage Suppliers Early: Contact your non-EU suppliers to request actual emissions data for their production processes. Many suppliers, particularly in developing economies, may not yet have robust carbon accounting systems. Establishing this dialogue early gives both parties time to develop reliable data collection processes. Provide suppliers with the EU's standardized reporting templates to ensure consistency.
3. Establish Internal Compliance Infrastructure: Designate a CBAM compliance team or officer within your organization. This function should sit at the intersection of procurement, sustainability, and legal departments. Invest in software tools or platforms that can automate emissions data collection, certificate management, and regulatory reporting.
4. Register as an Authorized CBAM Declarant: Complete the registration process with your national competent authority. Ensure that your customs broker or freight forwarding partners are also aware of CBAM requirements and can flag relevant imports at the border.
5. Implement Data Collection and Verification Workflows: Build systematic processes for collecting, validating, and storing emissions data from each supplier. Establish contracts that require suppliers to provide verified emissions data as a condition of continued business. Identify and engage accredited verification bodies well in advance of the 2026 deadline.
6. Model Financial Impact and Adjust Pricing Strategy: Calculate the projected cost of CBAM certificates based on current EU ETS prices and your import volumes. Develop scenarios for how these costs will affect your margins and determine whether and how to incorporate them into your pricing. Retailers with thin margins should model the impact at the SKU level to identify the most affected product categories.
7. Diversify and Optimize Your Supply Chain: Evaluate whether shifting procurement to EU-based or lower-carbon suppliers could reduce your CBAM exposure. In some cases, sourcing steel or aluminium from producers who use renewable energy or more efficient processes — even at a slightly higher unit cost — may be cheaper than paying for CBAM certificates on carbon-intensive imports.
8. Train Your Teams: Ensure that procurement managers, customs specialists, and sustainability teams understand CBAM requirements and their specific responsibilities. Compliance failures carry significant penalties, including fines and potential loss of import authorization.
9. Monitor Regulatory Developments: CBAM is expected to expand its scope over time, potentially covering additional product categories such as organic chemicals and polymers. Stay informed about legislative updates and begin assessing exposure to materials that may be added in future phases.

Frequently Asked Questions

Does CBAM apply to finished consumer products or only raw materials?

Currently, CBAM covers specific raw and semi-finished materials: iron, steel, aluminium, cement, fertilizers, electricity, and hydrogen. However, it also applies to certain processed products made from these materials, such as screws, bolts, tubes, and aluminium foil. Retailers importing finished goods that contain these materials as components — for example, steel furniture or aluminium cookware — should check the specific CN (Combined Nomenclature) codes listed in the CBAM regulation to determine whether their products fall within scope. The EU has indicated plans to progressively expand CBAM to cover more downstream products.

What happens if my non-EU supplier cannot provide emissions data?

During the transitional phase, importers may use default reference values published by the European Commission when actual emissions data is unavailable. However, from 2026 onward, reliance on default values will be limited and may result in higher costs, as default values are typically set at conservative (higher) emissions levels. Retailers should treat the inability of a supplier to provide emissions data as a supply chain risk and prioritize working with suppliers who can deliver verified, product-specific information.

How much will CBAM certificates cost?

CBAM certificate prices mirror the EU ETS carbon price, which has fluctuated between 50 and 100 euros per tonne of CO2 in recent years. The actual cost for a retailer depends on the embedded emissions per unit of imported product and the total import volume. For example, importing 1,000 tonnes of steel with embedded emissions of 1.8 tonnes of CO2 per tonne of steel, at a carbon price of 75 euros, would result in a CBAM cost of approximately 135,000 euros. Any carbon price already paid in the country of origin can be deducted from this amount.

Can small retailers be exempt from CBAM?

There is no blanket exemption based on company size. However, CBAM applies only to imports that exceed a de minimis threshold — shipments with a total value below 150 euros are excluded. In practice, most small retailers who import CBAM-covered goods in commercially meaningful quantities will need to comply. Small businesses should assess their exposure and consider whether consolidating imports through a compliant distributor or switching to EU-sourced alternatives could simplify their obligations.

Summary

CBAM represents a fundamental shift in how the EU manages the carbon footprint of imported goods, and retail and trade companies are directly in its path. The transitional reporting phase is already underway, and the financial obligations beginning in 2026 will materially affect procurement costs and supply chain decisions. Companies that act now — auditing their exposure, engaging suppliers, and building compliance infrastructure — will not only avoid penalties but also gain a competitive edge in an increasingly carbon-conscious market. The time to prepare is not next year; it is today.