The EU’s Carbon Border Adjustment Mechanism (CBAM) is reshaping how carbon-intensive goods are traded across borders. Targeting six key sectors, it introduces new reporting and cost requirements for importers.
At CFP Energy, we're already helping businesses navigate CBAM.
As UK ETS specialists, our team supports a range of organisations covered by carbon policy, providing insight and support to businesses across a range of industries. Contact our energy team today to see how we can help you access CBAM certificates and avoid the risk of financial penalties.
CBAM covers six carbon-heavy sectors. With each industry generating substantial CO₂ emissions during production, the European Commission has targeted these are critical sectors to decarbonise.
The covered CBAM sectors include:
Each sector has specific product codes and technical definitions that determine whether your imports fall under the rules. These rules ensure that imported goods face equivalent carbon costs to EU-produced goods, preventing "carbon leakage" where production is sometimes relocated to countries with less stringent climate policies. The mechanism will align with the gradual phase-out of EU ETS free allowances, beginning in 2025 and ending in 2034.
Figure 1. Carbon border adjustment mechanism (source: ICAP).
Businesses in these sectors are currently grappling with three major pain points:
Getting reliable emissions data from suppliers outside Europe proves incredibly difficult. Many manufacturers fail to properly track their carbon footprint, while some neglect to share sensitive production information. Supply chains often span multiple countries, making data verification difficult, particularly when carried out in-house.
CBAM certificates will begin to increase in cost from 2026 onwards. With EU carbon prices hitting €90+ per tonne recently, the financial impact will be significant for high-volume importers. Administrative costs, from legal fees to consultant expenses, will start to add up too.
Supply chains weren't designed with carbon transparency in mind. Importers now need to acquire detailed emissions data from all the suppliers and energy providers in their network. Failing to do so will result in default emission values being applied - typically set at the 90th percentile of EU production emissions, making imports increasingly expensive.
Each of these metals passes through multiple processing stages before reaching importers. Steel production, for instance, involves iron ore mining, coking and finishing processes such as annealing and coating. Each stage emits carbon - often in different countries - making it very difficult for importers to accurately calculate the total embedded emissions. Aluminium, meanwhile, faces problems because smelting consumes significant amounts of electricity, with the carbon footprint of the emissions depending on the renewability of the power source.
Both of these sectors generate what are called "process emissions" - CO₂ that comes directly from chemical reactions resulting from the transformation of raw materials into usable products. Cement production, for instance, releases CO₂ when limestone breaks down chemically into lime and carbon dioxide through a process called calcination. Fertiliser manufacturing, meanwhile, produces similar emissions during ammonia synthesis. These emissions can't be eliminated easily, meaning CBAM costs will hit these sectors particularly hard.
The carbon content varies wildly depending on production methods. "Green" hydrogen made with renewable electricity has almost zero emissions, while hydrogen from natural gas generates significant CO₂. Electricity faces similar issues – while hydropower exports are clean, coal-fired electricity carries heavy carbon costs. Proving the production method to EU customs requires detailed documentation that many suppliers struggle to provide.
CBAM introduces legislation to ensure companies map their carbon exposure in unprecedented detail. This data reveals which suppliers run efficient operations and which ones are carbon-intensive. Smart companies use this intelligence to negotiate better deals with clean suppliers, identify opportunities to switch sources, and pressure high-carbon suppliers to improve their operations.
Early movers gain competitive advantages by securing relationships with efficient suppliers before everyone else wakes up to the opportunity.
At CFP Energy, we assist you in assessing the impact of CBAM, helping you to navigate the technical hurdles that apply to your sector. From providing instant access to CBAM certificates to assessing your embedded emissions, we can help to prepare at every stage.
CBAM within the EU will become fully operational by 1 January 2026, so the time to plan is now.
Contact us today to begin planning your Carbon Border Adjustment Mechanism strategy.