EC proposed changes to CBAM which is in transition phase to impose levy on EU imported goods with heavy emissions
On 26 February 2025, the European Commission adopted simplifications to the Carbon Border Adjustment Mechanism (CBAM) levy on goods when it comes fully into effect from 1 January 2026. The revisions mean only 10% of EU resident businesses will be fully liable to This means about 10,000 companies instead of the original target of 200,000.
The EC update to the existing CBAM include:
- Flexibility on full implementation for 2026 (goods purchased in 2026 not liable to CBAM certificates until Feb 2027)
- new threshold exemption of 50 tonnes mass which would keep around 99% of emissions still in the CBAM scope, while exempting around 90% of the importers.
- Softer penalty regime
- Withdrawing certain clays from scope
In August 2023, the European Commission adopted the transition implementation regulations for CBAM. It imposes a tariff on carbon-heavy imported goods to equalise the charges imposed on EU-produced equiviliaent products under the Emissions Trading System (ETS).
CBAM has two objectives:
- Stopping relocation of production of in-scope goods from the EU to less carbon-regulated countries; and
- Encouraging more sustainable production practices beyond the EU’s borders.
The introductory transition phase lasts between October 2023 and January 2026.
The UK CBAM is being introduced from 2027.
CBAM – stopping carbon leakage
The EU’s CBAM mechanism will oblige importers of carbon-intensive goods to purchase offset certificates via a new ETS market. The aim is to discourage ‘carbon leakage’ whereby EU companies can avoid EU climate policies and associated costs by importing goods from non-EU countries with lower standards. CBAM will target goods such as:
- cement;
- iron and steel;
- aluminium;
- fertilisers;
- electricity; and
- hydrogen.
Other goods may be included in a next round include:
- glass;
- ceramics; and
- chemicals.
It is being phased in since October 2023, with importers having to produce their reports since January 2024. There will be no requirement to purchase certificates during this transition period. It is expected that it will be fully in force by January 2026, from which time the certificate purchasing is required.
Reporting will be annual, and will require businesses to estimate embedded emission released in the production of their affected CBAM goods. Guidance on methodologies are being drawn up. Importers will annual declare the emissions, and surrender the corresponding number of CBAM certificates. The prices of these is settled on the ETS market.
