What Is CBAM? The 2026 Definitive Regime Has Begun: A Comprehensive Guide for Producers

CBAM (the Carbon Border Adjustment Mechanism) is the carbon pricing system the European Union developed to prevent carbon leakage. Having entered its definitive regime on 1 January 2026, this regulation directly affects every producer that exports goods to the EU. In this guide we cover in detail what CBAM is, which sectors it covers, how it is calculated and what it means for producers exporting to the EU.

What Is CBAM and Why Does It Exist?

CBAM stands for Carbon Border Adjustment Mechanism. Its core aim is to ensure that the carbon cost applied to goods produced inside the EU is also applied to goods imported into the EU.

For its own industry, the EU applies carbon pricing through the EU Emissions Trading System (EU ETS). Producers outside the EU, however, are not subject to this cost. That creates two problems:

Carbon leakage risk: EU producers may move production to countries outside the EU to avoid the carbon cost. Total global emissions then do not fall, they merely shift location.

Distorted competition: While an EU producer pays a carbon cost, a producer exporting the same product to the EU is exempt from it. This creates an unfair playing field.

CBAM aims to solve both problems together. A carbon cost is charged on the embedded emissions of products imported into the EU, and this cost is brought into line with the carbon price paid by EU producers.

Which Sectors Does CBAM Cover?

CBAM initially applies to six carbon-intensive sectors:

• Iron and steel: Pig iron, carbon steel, high-alloy steel and all products made from them
• Aluminium: Primary and secondary aluminium, sheet, profiles, foil, wire
• Cement: Clinker, Portland cement and its derivatives
• Fertilisers: Ammonia, nitric acid, urea and nitrogenous compound fertilisers
• Hydrogen: All production methods (grey, blue, green)
• Electricity: Cross-border electricity exported to the EU

These sectors are responsible for a significant share of global industrial emissions, which is why CBAM covers them in its first phase. The Commission is considering expanding the scope towards 2030; sectors such as ceramics, glass, paper and chemicals may be brought into scope later.

To determine whether your product falls within CBAM, its Combined Nomenclature (CN) code is checked. The European Commission has officially listed around 752 CN codes within scope.

Transitional Period and Definitive Regime

CBAM is being implemented in two phases:

Transitional period (1 October 2023 to 31 December 2025): During this period there was only a reporting obligation. Importers reported embedded emissions quarterly, but there was no financial liability. The aim was for both importers and producers to learn the system and set up their data collection infrastructure.

Definitive regime (from 1 January 2026): After this date, importers must purchase enough CBAM certificates to cover the embedded emissions of the products they import. The certificate price is indexed to the weekly average carbon price in the EU ETS.

The first definitive-period declaration will be submitted on 30 September 2027 and will cover imports between 1 January and 31 December 2026.

The 2025 Simplification (Omnibus) Regulation

Just before the definitive regime, on 17 October 2025 the EU published Regulation (EU) 2025/2083. This is the first significant revision of CBAM and aims to reduce both the burden on importers and operational complexity.

The most important changes:

50-tonne cumulative threshold (de minimis exemption): Companies that import less than 50 tonnes of CBAM-covered goods per year are exempt from the obligation to become an authorised CBAM declarant. According to the European Commission, this threshold exempts roughly 90% of importers while keeping 99% of embedded emissions in scope.

An important exception: The de minimis threshold applies to the cement, iron and steel, aluminium and fertiliser sectors. For hydrogen and electricity, the CBAM obligation continues regardless of the import volume.

Reporting and verification simplifications: Some reporting fields were removed, and simplifications were introduced in the verification process for smaller operators.

Clarified first-declaration timeline: The Omnibus regulation clarified the first definitive declaration date (30 September 2027) and reduced uncertainty around the transition.

Commission review: The European Commission announced its intention to review default values and mark-up rates by December 2027. This means the timeline could be revised in the future.

What Is Embedded Emission?

At the heart of CBAM lies the concept of embedded emission. A product's embedded emission is the sum of all greenhouse gas emissions released to produce that product. It consists of three components:

1. Direct Emissions (Scope 1)

Emissions that occur directly at the production facility. Fuel combustion (natural gas, coal, fuel oil), process emissions (calcination, electrolysis) and fugitive emissions fall into this category.

2. Indirect Emissions (Scope 2)

Emissions arising from the generation of purchased electricity and heat. An example is the emissions created at the power plant that generates the electricity a cement plant uses to turn its rotary kiln.

An important point: CBAM regulation treats the inclusion of Scope 2 differently for each sector. For products covered by Annex II (iron and steel, aluminium and hydrogen), only direct emissions are included in the CBAM calculation; Scope 2 is calculated for these products but is not included in the certificate calculation. For cement and fertilisers, Scope 2 is fully included, because these sectors do not benefit from the indirect-emission compensation under free allocation, so CBAM also covers their indirect emissions.

3. Precursor Emissions

The emissions of the intermediate products (precursors) used in producing the good. For example, a steel producer must also include the emissions of iron ore, coking coal and alloying elements in the calculation. This requires collecting data from multiple tiers of the supply chain.

The Specific Embedded Emissions (SEE) Formula

A product's specific embedded emissions are calculated by multiplying the sum of direct, indirect and precursor emissions by the attribution factor and dividing by the production quantity:

SEE = (E_direct + E_indirect + E_precursor) × AF / Q

Where:

• E_direct: Direct Scope 1 emissions (tCO₂e)
• E_indirect: Scope 2 emissions, included or excluded depending on the sector (tCO₂e)
• E_precursor: Intermediate-product emissions from suppliers (tCO₂e)
• AF: Attribution factor, the share allocated to each product when several products are made at the same facility
• Q: Production quantity in the relevant period (tonnes)

The result is expressed as tonnes of CO₂ equivalent per tonne and is the core unit of CBAM reporting.

The 80/20 Actual Data Rule

One of CBAM's most critical rules is the 80/20 actual data rule. EU regulation requires that at least 80% of the precursor data in a product's embedded emission calculation come from actual supplier data. Default values may be used for the remaining 20%.

This rule forces producers to collect actual data from the supply chain. Using default values is easy, but they are generally higher than actual values and come with an additional penalty mechanism: the mark-up penalty.

The Mark-up Penalty

Using default values leads to a mark-up being applied to the calculated emissions. This increase grows year by year:

| Year | Mark-up Rate | Fertiliser Sector Exception | |---|---|---| | 2026 | +10% | +1% | | 2027 | +20% | +1% | | 2028 and after | +30% | +1% |

The fertiliser sector is subject to a fixed 1% mark-up rate each year under a special exception. In other sectors the mark-up rises quickly.

The mark-up penalty is added on top of the calculated gross emissions, and the result directly increases the quantity of CBAM certificates to be purchased. Producers who cannot collect actual data from suppliers see their costs rise noticeably, both because they cannot meet the 80% threshold and because the mark-up penalty is applied.

The CBAM Factor: The Phase-in Timeline

CBAM comes into force in parallel with the gradual removal of the free allocation discount in the EU ETS. In other words, full payment is not made in 2026; a coefficient called the CBAM factor means only part of the gross cost is paid. Under Article 31 of EU Regulation 2023/956, this coefficient rises year by year as follows:

| Year | CBAM Factor | Share of Gross Cost Payable | |---|---|---| | 2026 | 0.025 | 2.5% | | 2027 | 0.050 | 5.0% | | 2028 | 0.100 | 10.0% | | 2029 | 0.225 | 22.5% | | 2030 | 0.485 | 48.5% | | 2031 | 0.610 | 61.0% | | 2032 | 0.735 | 73.5% | | 2033 | 0.860 | 86.0% | | 2034 | 1.000 | 100.0% (full CBAM) |

This timeline matters because, although the CBAM cost appears to start low in 2026, the curve begins to steepen after 2029 and rises dramatically from 2030 onwards. CFOs and sustainability directors doing financial planning need to prepare their 2030 projections today.

The Verification Requirement

CBAM reports must be verified by independent accredited verification bodies. International verifiers such as SGS, TÜV and DNV provide this service. The verification process includes both a desk review and a physical site visit. From 2026, facilities producing within CBAM scope are expected to be subject to annual physical verification.

The core documents verifiers request:

• Fuel and electricity consumption invoices
• Production records and stock movements
• Supplier emission declarations
• Calibration certificates for measuring instruments
• Quality management system procedures
• Audit trail and records of retrospective changes

These documents must be retained until the end of the fourth year following the year in which the relevant declaration was made, in accordance with Article 10 of the CBAM regulation. Under local commercial law, the requirement to keep commercial books and records for a longer period should be assessed as a separate obligation.

What CBAM Means for Producers

Many countries that export heavily to the EU are major exporters in the CBAM-covered sectors, shipping millions of tonnes of iron and steel, cement and aluminium products to the EU market each year. For these producers, CBAM is not optional.

Before the definitive regime began, the most critical preparation steps were:

Data collection infrastructure: Production, fuel, electricity and process data must be recorded systematically. Manual tracking with Excel spreadsheets is no longer sufficient after 2026.

Mapping the supply chain: To meet the 80% actual data rule, precursor suppliers must be identified and emission data obtained from them. This requires coordination with a large number of suppliers.

Establishing the calculation methodology: Each sector has its own calculation rules, such as calcination CO₂ for cement, PFC emissions for aluminium and N₂O for fertilisers. Applying these rules correctly requires expertise.

EU Registry reporting format: CBAM reports must be submitted to the EU Registry system in a specific XML format. Format errors lead to rejection and can delay customs processes.

Verification readiness: An audit trail infrastructure must be in place so that verifiers can quickly access all documents during the site visit.

What Does Compliance Require?

For CBAM compliance, a producer needs the following capabilities:

• Staff who understand the EU MRR (Monitoring and Reporting Regulation) methodology
• Sector-specific emission factors and benchmark values
• A systematic process for collecting data from suppliers
• A calculation engine and versioning infrastructure
• EU Registry compliant report generation
• A tamper-proof audit trail
• Seven-year data retention

When these capabilities are not brought together in a single platform, every process runs on separate Excel files and manual methods. That approach is both error-prone and unscalable.

The Carbonaz Solution

Carbonaz is designed to manage every CBAM process in a single platform. It is fully compliant with all six CBAM sectors and includes everything CBAM requires: a calculation engine that follows the EU MRR methodology precisely, multi-tier supply chain management, report generation in the EU Registry format and a tamper-proof audit trail. We document every step of the calculation method clearly on our methodology page.

Our three main differences:

1. Unlimited supply chain depth: You can collect data even from your supplier's supplier's supplier. Reaching the 80% threshold becomes easier.
2. Automatic 80/20 check: The actual-data ratio is tracked automatically in every calculation, and you are warned when it drops below the threshold.
3. Multilingual platform: The interface, documentation and support are available in multiple languages, so your team does not have to wrestle with dense regulatory texts in a foreign language.

Conclusion

CBAM is an unavoidable compliance obligation for producers exporting to the EU. The definitive regime that began in 2026 will evolve into full CBAM towards 2034, and its cost impact will be felt more strongly every year. For producers, the question is not "should we comply with CBAM?" but "how efficiently can we comply?"

With the right platform, the right methodology and the right supplier data collection strategy, CBAM can stop being a cost item and turn into an opportunity to make the supply chain more transparent and more carbon-optimised.

For questions or demo requests, you can reach us through our contact page.

Sources

• Regulation (EU) 2023/956 - EUR-Lex: the main regulation establishing CBAM
• Regulation (EU) 2025/2083 - EUR-Lex: the October 2025 Omnibus simplification regulation (consolidated text)
• Carbon Border Adjustment Mechanism - European Commission: the European Commission's official CBAM portal
• EU adopts simplifications of CBAM rules - ICAP: summary of the 2025 simplification regulation
• CBAM simplified: 90% of Companies Exempt - Umweltbundesamt: an official German assessment of the de minimis impact
• Brussels looks to tighten CBAM verification rules - S&P Global: the 2026 physical verification requirement