Last updated: 27.04.2026
The Carbon Border Adjustment Mechanism (CBAM) is one of the key instruments of the European Union’s climate policy aimed at tackling climate change. It was introduced by an EU Regulation in 2023 as part of the “Fit for 55” legislative package and is intended to address the phenomenon of carbon leakage.
CBAM aims to equalise the cost of CO₂ emissions between goods produced within the EU and goods imported from third countries. The mechanism reflects the carbon costs borne by companies operating under the EU Emissions Trading System (EU ETS).
In practice, this means that importers of certain carbon-intensive products into the EU must account for the greenhouse gas emissions generated during their production. The mechanism is intended to ensure a level playing field between EU producers and producers from outside the Union, while also encouraging the EU’s trading partners to introduce their own carbon pricing mechanisms.
How Does CBAM Work?
1. Calculation of Embedded Emissions
CBAM is based on carbon emissions embedded in imported goods, meaning embedded greenhouse gas emissions generated during their production.
These emissions are calculated using an EU method broadly aligned with the reporting rules applied under the EU ETS for comparable products manufactured within the EU. Where detailed emissions data are unavailable, default values may be used. However, the European Commission is gradually tightening the rules governing the use of such values in order to reduce the risk of regulatory circumvention.
2. CBAM Certificates
From 1 January 2026, CBAM has moved from the transitional period to full implementation. Importers of CBAM goods are required to purchase and surrender CBAM certificates corresponding to the emissions embedded in imported goods.
The price of CBAM certificates is linked to the price of emission allowances under the EU ETS. As a result, importers will bear a carbon cost comparable to that borne by producers within the EU.
3. Deduction of Carbon Costs Paid Outside the EU
If a producer outside the EU has already paid a carbon price in its country of origin (for example through a national emissions trading system or a carbon tax), that cost may be deducted from the CBAM obligation.
This mechanism prevents double carbon pricing and takes into account existing carbon pricing systems in third countries.
Regulatory Updates and Simplifications (2025–2026)
In 2025, the European Union adopted amendments simplifying the operation of CBAM through Regulation (EU) 2025/2083, which forms part of a broader legislative package aimed at reducing administrative burdens for businesses.
The most significant changes include the following.
1. “De Minimis” Threshold for Importers
Under the new rules, importers who bring 50 tonnes or less (total net mass) of CBAM-covered goods into the European Union per year are exempt from the obligations arising from the mechanism.
This exemption means that such importers are not required to submit CBAM declarations nor purchase and surrender CBAM certificates.
An exception applies to hydrogen and electricity, which are excluded from the de minimis exemption.
The threshold is determined based on the total annual net mass of imported CBAM-covered goods, which simplifies the system and ensures consistent application across the EU. At the same time, the regulation provides for the possibility of adjusting this threshold in the future.
The European Commission will conduct an annual review of the threshold, taking into account factors such as changes in emission intensity in particular sectors and developments in international trade patterns.
2. Simplifications in the Calculation of Embedded Emissions
Changes have also been introduced regarding the methodology for calculating embedded emissions in imported goods.
Where reliable emissions data for a given country or producer are unavailable, it will be possible to apply default values. These values will be determined based on the highest emission intensity levels observed among countries for which reliable data exist, or, in certain cases, based on regional indicators.
In addition, for certain sectors such as steel, iron and aluminium, embedded emissions associated with the production of precursor materials are included by default, whereas emissions related to later finishing processes are excluded, in line with the rules applied under the EU ETS.
3. Changes to the Timeline for the Sale of CBAM Certificates
One of the key changes concerns the postponement of the start of CBAM certificate sales.
Instead of the originally planned date of 1 January 2026, the sale of CBAM certificates will begin on 1 February 2027.
Importers will therefore purchase certificates only in 2027, but these certificates will relate to embedded emissions in goods imported into the EU in 2026. Consequently, the obligation to account for emissions will apply retroactively to imports made during the first year of the system’s operation.
For emissions generated in 2026, the price of CBAM certificates will be based on the average quarterly price of EU ETS allowances during that year.
In subsequent years, the mechanism will operate more dynamically: certificate prices will reflect the average weekly closing auction price of EU ETS allowances, and certificates will be available for purchase at any time during the year.
4. Deduction of Carbon Costs Paid Outside the EU
The rules governing the recognition of carbon costs paid in third countries have also been updated.
If a carbon pricing mechanism exists in the country of production but the exact carbon price paid by the producer cannot be determined, standard reference values may be applied.
The European Commission plans to publish default carbon prices for individual countries, together with the methodologies used to calculate them, in the CBAM registry starting in 2027.
Importantly, the new rules also allow the deduction of carbon taxes paid in a country other than the final exporting country. This solution is particularly relevant for complex supply chains, where different stages of production take place in different jurisdictions.
5. Changes to Declaration Deadlines and Certificate Holding Requirements
The deadline for submitting the annual CBAM declaration has been extended from 31 May to 30 September of the year following the year of import.
The required level of certificates that a declarant must hold in their CBAM registry account during the year has also been modified. It currently amounts to 50% of the embedded emissions in CBAM-covered goods imported since the beginning of the given calendar year, which must be covered by CBAM certificates held in the declarant’s registry account at the end of each quarter.
When calculating emissions, a correction factor is also applied to reflect the fact that EU producers continue to receive partial free allocation of emission allowances under the EU ETS.
Free allowances for sectors covered by CBAM will be gradually phased out between 2026 and 2034, and the CBAM mechanism will be adjusted accordingly.
6. Special Rules for Offshore Production
Hydrogen and electricity produced entirely on the continental shelf or in the exclusive economic zone of a country belonging to the European Economic Area, and then imported directly into the EU customs territory, are not subject to the CBAM mechanism.
7. Possibility to Delegate Reporting Obligations
Companies may also delegate the preparation and submission of CBAM declarations to a third party.
However, the authorised CBAM declarant remains responsible for the accuracy of the declaration and for fulfilling all obligations arising under the regulations including proper CBAM compliance.
The entity entrusted with preparing the declaration must be established in an EU Member State and must possess an EORI number, enabling identification within the EU’s customs and administrative systems.
Which Sectors Are Covered by CBAM?
The CBAM mechanism currently covers sectors particularly exposed to the risk of carbon leakage, including:
- cement
- iron and steel
- aluminium
- fertilisers
- hydrogen
- electricity
These sectors account for a significant share of industrial emissions covered by the EU ETS and have been identified as the most vulnerable to the relocation of production outside the EU.
How Does CBAM Interact with the EU Emissions Trading System (EU ETS)?
The EU ETS is the EU’s primary instrument for reducing greenhouse gas emissions in energy-intensive industries and the power sector. Under this system, EU companies must purchase emission allowances to cover their CO₂ emissions.
To mitigate the risk of carbon leakage, certain sectors have historically received free emission allowances. With the introduction of CBAM, the number of such free allowances will gradually decrease.
CBAM therefore acts as a complementary mechanism to the EU ETS, ensuring that importers of carbon-intensive goods bear a carbon cost comparable to that borne by producers within the EU.
However, the CBAM certificate system differs from the EU ETS in that:
- the number of certificates is not subject to an overall emissions cap,
- their price is linked to the average price of EU ETS allowances.
From 1 January 2026, CBAM has entered its full implementation phase, and importers are required to purchase and surrender CBAM certificates corresponding to the emissions embedded in imported goods.
The first CBAM report covering imports made in 2026 will be submitted in 2027, together with the surrender of the corresponding number of certificates.
By 2034, free emission allowances for CBAM sectors are expected to be fully phased out, resulting in a complete alignment of carbon costs between EU production and imports and supporting the EU’s green transition.
Tax Aspects of the CBAM Mechanism
The obligation to purchase and surrender CBAM certificates also gives rise to specific tax implications for importers. Although the mechanism is sometimes informally referred to as a “carbon border tax”, from a legal perspective it does not constitute a tax in the traditional sense under current CBAM regulations.
Economic Nature of the CBAM Charge
The cost incurred by importers results from the obligation to purchase CBAM certificates corresponding to the carbon emissions embedded in imported goods. The price of these certificates is linked to the emission allowance market under the EU ETS, ensuring a fair price for the carbon emitted during production.
In simplified terms, this cost can be expressed as the product of the embedded emissions of a given product and the price of a CBAM certificate per tonne of CO₂ emissions.
Where actual emissions data are unavailable, default values determined by the European Commission may be applied.
Entity Bearing the Financial Burden of CBAM
The financial and administrative obligations associated with CBAM fall directly on the importer of CBAM-covered goods.
The entity introducing such goods into the EU customs territory must obtain the status of an authorised CBAM declarant.Its key obligations include in particular:
- determining the carbon emissions embedded in imported goods,
- purchasing CBAM certificates via a central platform managed by the European Commission,
- submitting annual CBAM declarations,
- surrendering certificates corresponding to the emissions related to imports.
Failure to surrender the required number of certificates may result in financial penalties, the level of which is linked to penalties applied under the EU ETS for exceeding permitted emission levels.
CBAM Certificates and VAT
No Right to Deduct VAT
The purchase of CBAM certificates is not subject to value added tax (VAT).
These certificates are not treated as goods or services within the meaning of VAT legislation but rather as regulatory instruments arising from the EU climate policy framework. Consequently, their purchase does not generate input VAT that could be deducted by the taxpayer.
This means that the importer cannot reduce VAT payable by any tax related to the purchase of CBAM certificates. The expenditure therefore constitutes an economic cost for the business that is not VAT-neutral.
In practice, it is also important to ensure the correct accounting treatment of these expenses. The value of CBAM certificates should not be included in the VAT taxable base for the import of goods, as the CBAM mechanism operates independently of the customs system.
The taxable base for imports generally consists of the customs value of the goods, customs duties and – where applicable – excise duties.
Incorrectly including the cost of CBAM certificates as part of the customs value in VAT reporting (for example in the JPK_V7 structure) may be treated as an error in tax settlements. In certain cases, this may result in tax penalties, including additional tax liabilities amounting to up to 30% of the understated taxable base.
CBAM Certificates as a Tax-Deductible Expense
From the perspective of corporate income tax (CIT), expenses incurred for the purchase of CBAM certificates may constitute tax-deductible costs.
The nature of these expenses is similar to costs incurred by entities covered by the EU ETS, which purchase emission allowances in connection with their business activities.
Direct Link to Revenue
The purchase and subsequent surrender of CBAM certificates are directly linked to the ability to conduct business activities involving the import and sale of goods within the EU market.
In practice, holding and surrendering certificates is a prerequisite for legally placing such goods on the market and avoiding financial penalties.
Therefore, expenditure on CBAM certificates may be regarded as costs directly related to generating revenue from the sale of imported goods to EU customers.
Timing of Tax Cost Recognition
According to the current interpretative practice of tax authorities, expenses incurred for the purchase of emission allowances – and by analogy CBAM certificates – become tax-deductible only at the moment of their final settlement, i.e. their surrender.
In practice, this means that the mere purchase of certificates does not yet give rise to a tax-deductible expense.
The tax cost arises only when the CBAM declaration is submitted and the certificates are surrendered in the registry.
As a rule, the expense should be recognised in the tax year in which the corresponding revenue from imports subject to CBAM was generated, in accordance with Article 15(4) of the Corporate Income Tax Act.
If the surrender of certificates occurs after the end of the tax year but before the preparation of the financial statements, the cost may be allocated to the year to which the import relates. If the settlement takes place later, the expense should be recognised in the year in which the certificates are actually surrendered.
FAQ – CBAM
What is the EU Carbon Border Adjustment Mechanism CBAM?
It’s a key tool implemented by the European Union (EU) to address carbon leakage and align with international climate commitments. CBAM ensures that carbon-intensive goods imported into the EU market are subject to the same carbon price as those produced within the EU, thus maintaining a level playing field.
It is designed to complement the EU Emissions Trading System (EU ETS) and reduce greenhouse gas (GHG) emissions by encouraging other countries and foreign producers to adopt similar carbon pricing mechanisms.
How does CBAM support climate policy goals?
CBAM supports the EU’s climate strategy by incentivising producers worldwide to reduce emissions and encourage cleaner industrial production. Over time, this contributes to cleaner industrial production globally and aligns international trade with EU climate ambitions.
Is CBAM a tax?
Although the term “CBAM tax” is often used informally, CBAM is not a tax in the classical sense. It is a regulatory system based on the purchase of certificates, functioning as part of the EU’s climate policy framework.
How does CBAM account for embedded emissions?
CBAM focuses on emissions generated during the production of goods imported into the EU. These emissions are calculated using a methodology similar to that applied in the EU ETS reporting framework.
EU importers are required to surrender the appropriate number of CBAM certificates corresponding to the embedded emissions of imported products.
What changes from 2026?
From 2026, CBAM has entered its full operational phase.
Importers will be required to:
- register as authorised CBAM declarants,
- calculate the embedded emissions in imported goods,
- purchase and surrender CBAM certificates corresponding to those emissions.
How does the CBAM work with embedded carbon emissions?
CBAM focuses on the actual embedded emissions in goods imported into the EU. These emissions are calculated based on methodologies aligned with EU ETS reporting standards.
Since 2026, EU importers are required to purchase CBAM certificates, which reflect the carbon price that would have been applied if the goods were produced within the EU member states. This mechanism helps to ensure that imported goods face equivalent carbon prices, preventing carbon leakage and encouraging greener production processes worldwide at international trade level.
