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CBAM As a Trade and Financial Issue
The EU Carbon Border Adjustment Mechanism (CBAM) represents a fundamental shift in global trade. It is the first mechanism that ties carbon prices to products imported into the EU. While carbon pricing was once limited to EU producers under the Emissions Trading System (ETS) it is now applied to imported products across a number of industries. Carbon costs are therefore embedded into exporters’ margins which impacts their ability to compete in the European market.
From the CBAM implementation date of 1 October 2023, importers have been required to report the embedded emissions of goods covered by the regulation. From 1 January 2026, this reporting obligation converts into a financial liability, with CBAM certificates priced in line with EU ETS allowances.
As a result, CBAM is not a reporting exercise. It is a trade risk linked to carbon emissions that ties product footprint and associated data quality directly to financial liability.
How the CBAM Works
The European Carbon Border Adjustment Mechanism is designed to prevent carbon leakage by ensuring that imported goods face a carbon cost equivalent to that borne by EU producers under the ETS.
Scope and Coverage
CBAM initially applies to the following carbon-intensive sectors:
- Cement
- Iron and steel
- Aluminium
- Fertilisers
- Electricity
- Hydrogen
- For these goods, imported into the EU, importers must calculate and declare embedded GHG emissions. These cover direct emissions (Scope 1) and depending on the specific product category also indirect emissions (Scope 2) from electricity consumption.
From Reporting to Meeting Financial Obligation
During the transition phase (2023–2025) companies had to submit quarterly reports only and did not face any financial payments.
From 1st January 2026, importers must purchase and surrender CBAM certificates. The number of certificates required will be adjusted to account for the gradual phase-out of free ETS allowances provided to EU producers, ensuring WTO compliance. Importers who have already paid a verified carbon price in the country of origin can deduct that amount from their final CBAM obligation, provided the data is robust and auditable.
Companies that are not using verified actual emissions or such data is unavailable, must use default values. In the definitive phase, these will be set at the level of the worst-performing 10% of EU installations. This punitive measure is designed to encourage primary data disclosure. These are intentionally conservative and can materially increase CBAM costs.
Why Data Quality Directly Affects CBAM Costs
CBAM does not reward intent, it rewards verifiable data.
Companies able to demonstrate actual, facility-level emissions can materially reduce their CBAM certificate obligation. Those relying on defaults effectively accept a higher assumed carbon intensity, increasing import costs and eroding competitiveness.
This risk is particularly relevant for exporters sourcing or manufacturing in countries such as China, where:
- Emissions intensity varies significantly by region and energy mix
- Generic global emission factors often overstate actual performance
- Using China-specific emission factors and primary supplier data can therefore be a direct lever for cost reduction under CBAM.
Strategic Implications for CSOs
CBAM elevates carbon accounting from sustainability reporting to a trade and competitiveness requirement.
Key implications include:
- Carbon data must meet audit and verification standards, not just internal reporting needs
- Supplier engagement becomes a commercial necessity, not an ESG “nice-to-have”
- Emissions reductions translate directly into lower costs, not just reputational benefits
- Organisations that treat CBAM as a compliance exercise will face higher long-term costs. Those that invest early in accurate data and supplier transparency will remain or even strengthen their competitiveness.
Operationalising CBAM Compliance at Scale
Effective CBAM compliance requires more than spreadsheets and manual calculations. It depends on:
- Accurate emissions accounting, aligned with the GHG Protocol and ISO 14064
- Granular emission factors, particularly for electricity and industrial processes
- Supplier data collection workflows for embedded emissions
- Audit-ready documentation that enables third-party verification
- This is where enterprise carbon management platforms become essential.
How Carbonstop Supports CBAM Readiness
Carbonstop enables organisations to manage CBAM as a data and risk management challenge, not just a reporting task.
Key capabilities include:
- China-specific emission factors, improving accuracy for global supply chains
- Automated emissions calculations aligned with CBAM methodologies
- Supplier engagement systems to collect and validate primary supplier data
- AI-enabled validation to identify anomalies and data gaps
- Audit-ready systems aligned with CSRD, ISSB, and CBAM requirements
- By establishing a single source of truth for carbon data, organisations can respond to CBAM effectively as well as meet other regulatory requirements.
Long-Term Outlook: Global Convergence of carbon pricing
The EU CBAM is increasingly seen as the first of carbon-aligned trade mechanisms. Other countries will soon follow. For example, the UK has announced plans to introduce its own CBAM from 1 January 2027. Momentum is also building in the United States. Proposals such as the Foreign Pollution Fee Act and the Clean Competition Act aim to levy costs on carbon-intensive imported goods. In January 2026, the incorporation of PROVE IT Act provisions into federal law signalled a concrete move toward measuring the carbon intensity of U.S. products compared to those manufactured overseas.
For businesses operating globally, this means that carbon-based trade policies are here to stay and that emissions data quality will increasingly determine market competitiveness.
Conclusion
CBAM transforms carbon data from a sustainability metric into a financial variable. As a result, organisations exposed to EU markets must move now to establish robust, auditable carbon data systems.
For CSOs and ESG leaders, the strategic question is no longer whether to comply, but how to minimise cost and risk while preserving market access. Data quality, supplier transparency, and verification readiness are now central to competitiveness under CBAM.
Understanding the regulation is only the first step. The next is recognising how emissions data quality directly translates into financial exposure and trade resilience. Our executive briefing explores this shift in detail.
Contact Carbonstop to assess your CBAM exposure and understand how accurate emissions data, supplier engagement, and audit-ready workflows can materially reduce CBAM risk and costs.
FAQ
What is CBAM?
CBAM is an EU policy that applies a carbon price to certain imported goods to align their carbon costs with those faced by EU producers under the ETS.
When does CBAM become financially enforceable?
Reporting began on 1 October 2023. Financial obligations start on 1 January 2026.
Which emissions are covered under CBAM?
CBAM covers embedded emissions, including direct (Scope 1) emissions and indirect emissions from electricity (Scope 2).
What happens if a company cannot provide verified emissions data?
Default values apply. These are conservative and typically result in higher CBAM costs.
How can companies reduce CBAM exposure?
By using verified, facility-level emissions data, engaging suppliers, improving emissions performance, and implementing audit-ready carbon management systems.
