On 1 January 2026 the European Union's Carbon Border Adjustment Mechanism moved from its transitional reporting phase into its definitive regime. CBAM puts a carbon price on the emissions embedded in imports of cement, iron and steel, aluminium, fertilisers, electricity and hydrogen, so that imported goods face a cost comparable to that borne by EU producers under the Emissions Trading System. Under the definitive regime, importers bringing in more than a single mass-based threshold of 50 tonnes of CBAM goods a year must be authorised CBAM declarants. They declare the emissions embedded in their imports and surrender certificates priced on the basis of ETS auction prices, calculated as a quarterly average in 2026 and a weekly average from 2027. Where a carbon price has already been paid in the country of production, it can be deducted. Certificate sales begin in 2027, with the first annual declaration and surrender, covering 2026 imports, due by 30 September 2027.
The definitive phase is the point at which CBAM stops being a reporting exercise and starts to cost money. Our view is that the first year will be decided less by the level of the carbon price than by the quality of emissions data. Importers that cannot obtain verified installation-level data from their suppliers will have to rely on default values, which are designed to be conservative. That creates a strong incentive for exporters to measure and verify their emissions, and a real burden for smaller suppliers in developing countries that lack the systems to do so.
How CBAM changes the economics
The EU's free allocation of emissions allowances to industries at risk of carbon leakage is being phased out as CBAM is phased in. For European steel, cement, aluminium and fertiliser producers, that means a rising carbon cost on their own output. CBAM is designed to ensure that imports face a similar cost, so that the phase-out of free allocation does not simply shift production abroad.
For exporters to the EU, the effect depends on the carbon intensity of their production and on whether they pay a carbon price at home. A steel mill using a blast furnace and coal will face a much higher CBAM cost than one using an electric arc furnace and low-carbon power. Countries with their own carbon pricing can reduce the burden on their exporters by the amount already paid. That gives trading partners an incentive to introduce or strengthen carbon pricing, which is one of the stated aims of the mechanism.
Why the 50 tonne threshold matters
The definitive regime introduced a single mass-based de minimis threshold of 50 tonnes a year, following the simplification agreed in 2025. Importers below the threshold are exempt for cement, iron and steel, aluminium and fertilisers. This removes the vast majority of small importers from the system while, according to the Commission's reasoning, still covering the large majority of embedded emissions, because CBAM imports are dominated by a relatively small number of large importers. The threshold does not apply to electricity or hydrogen.
This was a sensible change. In the transitional phase, many small businesses importing occasional quantities of steel products were drawn into reporting obligations that cost more to comply with than the emissions involved. Concentrating the regime on large importers lowers administrative costs without significantly weakening its environmental effect.
The data problem
The heart of CBAM compliance is the calculation of embedded emissions. Importers need data from the installations where the goods were produced, verified by accredited verifiers. During the transitional phase, many importers struggled to obtain this data, particularly for complex products with multiple stages of production, and relied on default values published by the Commission. The Commission has published corrected default values for the definitive period.
Default values are designed to be higher than the actual emissions of most producers, so that relying on them is costly. That is deliberate. It pushes importers to obtain actual data from suppliers. For large, sophisticated exporters, this is manageable. For smaller producers in countries without established monitoring, reporting and verification systems, it is a significant barrier. The EU has committed to support developing and least developed countries with technical assistance, but the gap between the requirement and capacity remains large in many supply chains.
Trade tensions
CBAM has been criticised by several major trading partners, including India, China, South Africa and Brazil, as a unilateral trade measure that disadvantages developing countries. The EU maintains that CBAM is designed to be compatible with World Trade Organization rules because it applies the same carbon price to imports as to domestic production. Whether trading partners accept that will depend on how CBAM is applied in practice, and whether the EU uses some of the revenue to support decarbonisation in exporting countries.
The timing matters as well. The definitive phase begins as global trade is under pressure from tariffs and as several countries are developing their own carbon pricing systems. If CBAM encourages more countries to price carbon, it will have achieved one of its main aims. If it is seen primarily as a protectionist tool, it could provoke retaliation.
What to watch in 2026
Three indicators will show how CBAM is working in its first definitive year. First, the number of authorised declarants and the share of imports covered by actual rather than default emissions data. Second, any change in import patterns for CBAM goods, especially steel and aluminium, which would show whether the mechanism is shifting trade towards lower-carbon suppliers. Third, the response of trading partners, including new or expanded carbon pricing schemes and any formal trade disputes.
Our assessment
CBAM's definitive phase is a landmark in climate policy: the first major attempt to price carbon in imported goods. Its early years will be dominated by data quality and administrative capacity rather than by the carbon price itself. The EU should invest in helping exporters, especially in developing countries, measure and verify their emissions, and should be transparent about how CBAM revenues are used. If it does, CBAM can become a tool that raises global standards. If it does not, it risks being seen as a barrier that falls hardest on those least able to comply.