Decarbonisation: what it is and why it matters
1 min
Level
What is decarbonisation and why is it urgent? Learn practical steps companies can take to support the global move toward net zero emissions.
ESG / CSR
Industries
MEASURE
ACT
COMFORM
The Carbon Border Adjustment Mechanism (CBAM)
Level
In this article, we’ll cover:
What the CBAM is and how it fits into the EU’s climate strategy
Why the mechanism was introduced, including the problem of carbon leakage
How it works – including timelines, reporting rules, and what products are affected
What changes to expect after 2026, including carbon pricing and penalties
Who the CBAM applies to, with a spotlight on UK and non-EU exporters
What businesses need to do to prepare, and how Greenly can help support compliance
“ The EU is taking decisive steps to clean up its supply chains, starting at the border. ”
To prevent companies from evading climate regulations by relocating production to countries with laxer standards, the EU has introduced the Carbon Border Adjustment Mechanism (CBAM), a tool designed to level the playing field and curb carbon leakage.
“ This initiative addresses a substantial concern: approximately 23% of global CO₂ emissions are embedded in traded goods, meaning nearly a quarter of emissions are tied to products manufactured in one country and consumed in another. ”
A transitional phase kicked off in October 2023, introducing new reporting requirements for importers of certain carbon-intensive goods. While the full pricing mechanism won’t apply until 2026, companies need to start preparing now, including businesses outside the EU.
Since CBAM targets emissions from imported goods, it has far-reaching implications for any company exporting to the EU.
What is the EU Carbon Border Adjustment Mechanism (CBAM)? An overview
“ The Carbon Border Adjustment Mechanism (CBAM) is the EU’s latest tool in the fight against climate change, and it’s designed to make sure emissions aren't just exported outside the bloc’s borders. ”
As the EU tightens its climate policies through instruments like the Emissions Trading System (EU ETS), there’s been growing concern about carbon leakage.
Note : carbon leakage is when companies shift carbon-intensive production to countries with weaker environmental rules, or when EU products are simply replaced by more polluting imports.
To address this, the CBAM places a carbon price on certain imported goods to reflect the emissions released during their production. In other words, it ensures that imported products face the same carbon costs as those made within the EU.
“ According to the European Commission, the aim is to “put a fair price on the carbon emitted during the production of carbon-intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries. ”
This is particularly relevant given that imports of carbon-intensive goods into the EU account for over 20% of the EU’s total emissions.
The CBAM was formally adopted on 17 August 2023, and its transitional phase began on 1 October 2023.
During this initial period, which runs until the end of 2025, companies must report the embedded greenhouse gas emissions of goods they import.
From 1 January 2026, the full system will come into effect, with importers required to purchase CBAM certificates to cover those emissions.
Note : to know more about CBAM and how Greenly can clarify it, read our CBAM one pager.
Why was the CBAM created?
“ The EU has set ambitious climate targets, aiming to cut carbon emissions and other greenhouse gases by at least 55% by 2030 and to become climate neutral by 2050. To meet these goals, the EU has steadily introduced stricter climate policies, with the EU Emissions Trading System (EU ETS) at the heart of its strategy. ”
The ETS is the world’s first and largest carbon market and works by putting a price on carbon. It sets a cap on the total amount of CO2 that can be emitted by certain sectors each year, and companies must hold carbon allowances to match their emissions.
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If they emit less, they can sell their surplus allowances.
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If they emit more, they must buy extra or face penalties.
Over time, the emissions cap is reduced, increasing the pressure to decarbonise.
To support EU industry during the early years of the scheme, free allowances were granted to certain energy-intensive sectors. However, these are being phased out between 2026 and 2034 to ensure the system continues to drive emissions reductions.
Note : since its launch in 2005, the ETS has helped to cut emissions in sectors like power and heavy industry by around 47% (compared to 2005 levels). But one major weakness has persisted: carbon leakage.
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What is carbon leakage?
Carbon leakage occurs when companies move their production to countries with weaker climate policies to avoid the costs of carbon pricing, or when lower-cost, high-emission imports replace EU-made products.
The result? Emissions are simply outsourced, not reduced.
As the European Commission explains:
“ Carbon leakage refers to the situation that may occur if, for reasons of costs related to climate policies, businesses were to transfer production to other countries with laxer emissions constraints. This could lead to an increase in their total emissions. ”
Because the ETS only applies within the EU, it can’t prevent emissions shifting across borders. Research by the European Central Bank has shown that some companies have already relocated their most carbon-intensive operations outside the EU, undermining the impact of the ETS.
To address this loophole, the EU proposed the Carbon Border Adjustment Mechanism (CBAM) in late 2022. The goal? To apply a carbon price - similar to a carbon tax - to imported goods from countries not covered by the ETS, and ensure that EU climate efforts aren’t undercut by cheaper, more polluting products made abroad.
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How does the Carbon Border Adjustment Mechanism work?
The Carbon Border Adjustment Mechanism (CBAM) requires importers to account for the greenhouse gas (GHG) emissions embedded in certain carbon-intensive goods they bring into the EU.
These emissions are tied to how the goods were produced, whether entirely or partially outside the EU, and will soon carry a carbon cost, similar to what EU producers already face under the Emissions Trading System (ETS).
“ The mechanism ensures that companies can’t avoid climate regulations by simply relocating production abroad or importing cheaper, high-emission alternatives, and encourages cleaner industrial practices globally. ”
Who does CBAM apply to?
CBAM applies to EU-based importers of specific goods produced outside the EU or in countries not covered by the EU ETS.
This includes:
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Iron and steel
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Cement
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Aluminium
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Fertilisers
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Electricity
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Hydrogen
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Certain downstream products made of iron and steel (such as screws, bolts, and similar items)
Note : whether or not a product is subject to CBAM depends on its Combined Nomenclature (CN) code. The full list of CBAM-covered goods and corresponding CN codes is available in Annex I of the CBAM regulation.
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Are there any exemptions?
Yes - to reduce the administrative burden on smaller importers and specific trade scenarios, the CBAM includes several targeted exemptions during the transitional phase.
These may evolve over time as the mechanism matures.
| Exemption | Description |
|---|---|
|
Low-value consignments
|
Shipments with a total intrinsic value under €150 are exempt from reporting obligations during the transitional period. |
|
Returned goods
|
Goods re-imported into the EU without modification after export are not subject to CBAM. |
|
Outward processing
|
Goods processed outside the EU and re-imported under the outward processing customs procedure are exempt. |
|
De minimis volume threshold (proposed)
|
In February 2025, the Commission proposed exempting importers of iron & steel, aluminium, cement, and fertilisers who import less than 50 tonnes per year. This measure is not yet in force but is intended to simplify compliance for smaller importers. |
Note : CBAM applies to imports from outside the EU, EEA, and Switzerland. Goods from EEA countries and Switzerland are not covered under the mechanism.
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The transitional phase: reporting, not payment (2023–2025)
To allow businesses time to adapt, CBAM is being rolled out in two phases. The current transitional phase began on 1 October 2023 and will run until 31 December 2025.
During this period:
Importers do not need to pay
for embedded emissions yet.
They must report
the embedded emissions in their imports on a quarterly basis.
The first report was due on 31 January 2024
for Q4 2023, and reports continue quarterly.
As of 1 January 2025, importers are required to use only the EU method for calculating emissions, as simplified options (like default values and equivalent third-country systems) are no longer permitted.
To submit reports, importers must:
Request access
to the CBAM transitional registry via their National Competent Authority.
Collect emissions data
from the production facility where the goods were made.
Report
the following information.
| Reporting requirement | What information needs to be provided |
|---|---|
|
Declarant details
|
Information identifying the declarant, including their role in the import process and responsibility for submitting the CBAM declaration. |
|
Origin and production site
|
The country of origin of the goods and the specific production facility where they were manufactured. |
|
Goods imported
|
The type of goods being imported, along with their quantity (usually in tonnes or units, depending on the product type). |
|
Emissions and carbon price
|
The amount of embedded greenhouse gas emissions associated with the goods and any carbon price or tax already paid at origin. |
|
Technical product data
|
Any relevant technical characteristics that influence emissions, such as composition, production method, or material quality. |
To help importers collect this data, the European Commission has published a guidance document and a communication template for requesting information from manufacturers.
What happens in 2026?
From 1 January 2026, CBAM enters its 'definitive phase', marking the start of full financial enforcement.
At this point:
Importers must register
as authorised CBAM declarants.
They will need to purchase and surrender CBAM certificates annually,
covering the greenhouse gas emissions embedded in their imports.
An annual CBAM declaration will be required,
detailing both the volume of goods imported and the emissions linked to those products.
The price of CBAM certificates will reflect the weekly average auction price of EU ETS allowances (€/tonne of CO2). This means the carbon cost of imported goods will mirror that of domestic EU production. If an importer can prove that a carbon price has already been paid in the country of production, this amount can be deducted from their CBAM obligation.
Failure to comply will carry penalties. If an importer fails to surrender the required number of certificates, they will face a fine of €10–50 per excess tonne of CO2 equivalent. If the importer is not an authorised CBAM declarant, for example, if a non-EU supplier bypasses reporting requirements, penalties can be up to five times higher, depending on the severity, frequency, and intent of the non-compliance.
These new obligations will also heighten financial exposure for businesses.
As free allowances under the EU ETS begin phasing out from 2026 (with a full phase-out by 2034), the cost of carbon is expected to increase. Some projections suggest that allowance prices could double or even triple in the coming years.
This creates a strong financial incentive, not just for importers but for their suppliers, to invest in cleaner supply chains and technologies that reduce carbon emissions.
“ In short, CBAM will shift from a reporting exercise to a carbon pricing obligation. Businesses will need robust systems in place to calculate emissions, manage data, budget for certificate costs, and ensure compliance with annual declarations, or face significant regulatory and financial consequences. ”
What about the EU Omnibus proposal?
In February 2025, the European Commission introduced a set of proposed changes to CBAM under the first Omnibus package. These proposed updates aim to streamline the system, reduce red tape, and make compliance more manageable for businesses, particularly smaller importers.
Key proposals include:
1️⃣
A 50-tonne de minimis exemption, removing reporting obligations for small importers of iron and steel, aluminium, cement, and fertilisers.
2️⃣
A simplified authorisation process for becoming a CBAM declarant.
3️⃣
Eased procedures for emissions calculation and financial liability management.
4️⃣
Enhanced anti-circumvention measures and a joint strategy with national authorities to prevent abuse.
While these changes have been welcomed by some for their potential to reduce the administrative burden, they are not yet legally in force. The final legislation and timeline for adoption are still under discussion.
While the Omnibus proposal is expected to bring regulatory simplifications, businesses should not assume major changes will take effect until the final legislation is confirmed.
“ Given the current uncertainty, companies should continue preparing for full CBAM compliance under the existing framework. Taking a proactive approach now is the best way to avoid disruption, particularly as the 2026 implementation date approaches. ”
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CBAM expansion: what's coming next?
“ While CBAM is still in its early stages, the European Commission has signalled that the mechanism is likely to evolve in the years ahead, with a broader range of goods and emissions potentially coming into scope. ”
A formal review of CBAM is planned before the end of 2025, as the transitional period draws to a close. This review will look at how the system is functioning and whether its coverage should be expanded.
- One likely outcome is that CBAM will be extended to cover additional product groups, such as organic chemicals, further downstream iron and steel products, and other sectors already regulated under the EU Emissions Trading System (EU ETS). The goal is to gradually align CBAM’s scope with that of the EU ETS, with full coverage targeted by 2030.
- There’s also the question of which emissions should be included. At present, CBAM mostly covers direct emissions, i.e., those generated during the actual production process. But the Commission is expected to assess whether indirect emissions, such as those linked to electricity used during manufacturing, should also be brought more fully into scope.
Here’s a quick look at the planned timeline:
| Phase | Timing | Application |
|---|---|---|
|
Scope and coverage review
|
End of 2025 | Evaluation of CBAM performance and whether to add new product categories or emissions types. |
|
Gradual expansion of covered goods
|
2026–2030 | Possible inclusion of organic chemicals and additional downstream products. |
|
Full implementation
|
By 2030 | CBAM is expected to cover all sectors included in the EU ETS, including indirect emissions. |
While no official decisions have been made yet, companies operating in sectors that might be brought into scope should start preparing now.
Expanding CBAM’s coverage will bring new compliance obligations, and businesses that stay ahead of these changes will be better placed to adapt smoothly when the time comes.
How to comply with CBAM reporting requirements
To prepare for the Carbon Border Adjustment Mechanism, read our case study: How Iconia Tackles CBAM with Greenly.
If you import CBAM-covered goods from outside the EU, such as steel, aluminium, cement, fertilisers, electricity, or hydrogen, then you are already subject to reporting obligations under CBAM’s transitional phase.
From 1 January 2026, financial obligations will follow, including the need to purchase CBAM certificates to account for the embedded emissions in your imports.
“ Whether you're a manufacturer, wholesaler, or importer of finished products that contain CBAM-listed materials, it’s crucial to prepare now to ensure smooth compliance. ”
Here’s what importers need to know and start doing:
1. Understand your product scope
- Check whether your imported goods fall under CBAM using their Combined Nomenclature (CN) codes, listed in Annex I of the CBAM regulation.
- CBAM applies only to goods produced outside the EU, including goods that underwent substantial processing abroad.
- From 2026, you’ll only be able to import CBAM goods if you are registered as an authorised CBAM declarant.
Don’t forget exemptions: certain shipments (e.g. under €150) may be excluded, but most emissions will still fall under CBAM obligations.
2. Meet your transitional period reporting obligations (2023–2025)
- Quarterly reports must be submitted through the CBAM transitional registry, accessible via your National Competent Authority (NCA).
- As of January 2025, all reports must be based on the EU emissions calculation methodology - earlier simplified options (like default values) are no longer accepted.
- You must report: The type and volume of goods imported; Embedded emissions linked to the production process; The origin and production site; Any carbon price paid in the country of production
The European Commission provides a reporting template and guidance to request emissions data from suppliers.
3. Engage your suppliers now
One of the most important and challenging parts of CBAM compliance is gathering accurate emissions data from non-EU manufacturers.
You’ll need to:
- Identify which of your suppliers are involved in the production of CBAM-covered goods
- Ask them to provide emissions data in line with the EU’s methodology
- Help them understand their role, especially if they’re unfamiliar with carbon reporting standards
Building this reporting process now will save time later and reduce your compliance risk as the financial phase begins.
4. Prepare for the financial mechanism in 2026
From 1 January 2026, importers will need to:
- Purchase CBAM certificates to match the reported carbon emissions embedded in their goods
- Submit an annual declaration summarising import volumes and associated GHG emissions
- Deduct any carbon price paid abroad, where valid proof is available
The price of CBAM certificates will align with the weekly average auction price of EU ETS allowances, meaning the cost could rise over time, especially as EU ETS free allowances are phased out. Budgeting for CBAM costs now and simulating different carbon price scenarios can help prevent surprises in 2026.
5. Keep documentation organised
CBAM compliance will require solid recordkeeping. Make sure you:
- Keep a log of supplier communications, emissions data, and declarations
- Store copies of quarterly and annual reports submitted to the CBAM registry
- Retain proof of any carbon prices paid in the country of origin
- Monitor any updates from your National Competent Authority or the European Commission
Need help?
Given the complexity of CBAM and its evolving requirements, many businesses are choosing to work with third-party experts like Greenly to:
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Help collect and validate supplier data.
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Convert emissions data into EU-compliant formats.
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Manage registry submissions and reporting deadlines.
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Simulate carbon pricing exposure and develop mitigation strategies.
What's the best software for CBAM compliance (2025)?
Choosing the right platform is key to smoothly navigating the EU’s Carbon Border Adjustment Mechanism (CBAM). The best CBAM-ready software helps businesses calculate embedded emissions, manage carbon pricing, and automate compliance reporting. Below we rank 10 top solutions available in 2025 - including Greenly as the leading option for end-to-end carbon management.
| Rank | Software | What it does | Best for | Available regions |
|---|---|---|---|---|
|
1
|
Greenly | Full carbon management platform covering CBAM reporting, carbon pricing, emissions tracking, and automated compliance workflows. | Importers, manufacturers, and exporters seeking a complete solution with expert guidance. | EU, UK, US |
|
2
|
EcoCarbon | CBAM-specific emissions tracking with integrated reporting templates for EU importers. | Small to medium-sized importers with simple product lines. | EU |
|
3
|
CarbonTrace | Advanced footprint calculations, scenario modeling for CBAM carbon pricing impacts. | Large manufacturers managing complex supply chains. | EU, North America |
|
4
|
EmisTrack | Automation for Scope 1–3 data collection and emissions verification aligned with CBAM requirements. | Multinational enterprises seeking centralised reporting. | Global |
|
5
|
CBAM SmartComply | Lightweight tool for exporters to quickly calculate embedded emissions and prepare declarations. | SMEs exporting to the EU. | EU, APAC |
|
6
|
ClimateBridge | Combines supplier engagement tools with CBAM-compliant footprint calculation. | Companies dependent on global supplier networks. | EU, Asia |
|
7
|
SustainPro | ESG-focused platform with CBAM modules for reporting and carbon pricing dashboards. | ESG teams in mid-to-large corporations. | EU, Americas |
|
8
|
CarbonLedger | Blockchain-based solution for traceable CBAM emissions data across supply chains. | Businesses needing verifiable data for regulators. | Global |
|
9
|
CBAM Assist | Entry-level calculator and reporting templates for quick CBAM compliance. | Small importers just starting CBAM reporting. | EU |
|
10
|
EnviroSoft | Broader sustainability platform offering optional CBAM reporting module. | Companies combining CBAM compliance with wider ESG tracking. | Global |
FAQ: CBAM software and compliance
To comply, companies must calculate the embedded emissions of imported goods, pay corresponding carbon pricing where applicable, and submit verified reports to EU authorities. Many use CBAM-ready tools to automate data collection and reporting.
This is software specifically designed to meet CBAM obligations, including embedded carbon footprint calculations, reporting templates, and automatic alignment with EU regulatory updates.
Yes. Modern platforms like Greenly offer automation for emissions tracking, data verification, and report generation, significantly reducing manual effort and compliance risks.
Most top tools are available across the EU and major exporting regions like the US and Asia. Availability depends on vendor reach and language support.
Consider your company size, supply chain complexity, and reporting needs. Large manufacturers may need advanced calculation and automation tools, while small importers might only require a lightweight calculator. Look for software that supports emissions tracking, carbon pricing analysis, and generates EU-compliant reports.
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How Greenly can support your CBAM compliance
Importers of goods manufactured outside of the EU, that fall within the CBAM reporting doesn’t need to be a manual, spreadsheet-heavy nightmare.
Greenly’s purpose-built platform streamlines the entire process for both EU importers and their international suppliers.
Here’s how we help:
| How Greenly supports CBAM compliance | What it means |
|---|---|
|
Emissions tracking
|
Greenly’s platform supports data collection across both direct and indirect emissions, helping you meet EU methodology requirements and avoid reporting gaps. |
|
Streamline supplier data collection
|
Use tailored CBAM questionnaires, automated follow-ups, and supplier-specific dashboards to collect accurate emissions data – no spreadsheets required. |
|
Track evolving supply chains
|
As new products or suppliers are added, Greenly automatically triggers new data requests, keeping your reporting up to date without extra admin. |
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Centralise supplier collaboration
|
Give your suppliers access to their own dedicated portal where they can upload data, access guidance, and contribute directly to your reports. |
|
Improve accuracy, reduce risk
|
Built-in quality checks and real-time insights help you spot issues early, reduce reporting errors, and stay ahead of rising carbon allowance costs. |
|
Automate quarterly reporting
|
Generate compliant XML reports in minutes, ready for direct upload to the EU portal. Our platform detects CBAM goods, flags missing data, and handles formatting automatically. |
Whether you’re an EU declarant or an international supplier, Greenly’s all-in-one CBAM solution is designed to save time, lower costs, and help you reduce emissions while staying compliant.
What UK businesses need to know about CBAM
Now that the UK is no longer part of the EU, it’s treated like any other non-EU country under CBAM. This means that UK exporters of covered goods, including steel, aluminium, cement, fertilisers, electricity, and hydrogen, are subject to the same reporting requirements as other third countries.
From October 2023, UK companies exporting these goods to the EU have had to submit quarterly reports on embedded greenhouse gas emissions. And from 2026, they will also be required to purchase CBAM certificates to cover those emissions.
UK businesses will need to:
- Engage closely with their suppliers to gather accurate emissions data
- Adjust systems and workflows to comply with EU reporting standards
- Consider the carbon cost of their exports, and how to remain competitive as EU buyers favour lower-emission products
- Understand how CBAM requirements differ from the UK Emissions Trading Scheme (UK ETS), especially when it comes to carbon pricing and emissions monitoring
“ Although CBAM brings added complexity, it also creates an incentive for UK businesses to decarbonise supply chains, invest in transparency, and maintain strong market access to the EU. ”
Sources
- Greenly, EU ETS: All You Need to Know About the Carbon Market Reform, https://greenly.earth/en-gb/blog/ecology-news/eu-ets-all-you-need-to-know-about-the-carbon-market-reform
- European Commission, Carbon Border Adjustment Mechanism (CBAM), https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en
- World Economic Forum, Emissions in Trade: How We Measure Them, https://www.weforum.org/stories/2025/03/emissions-in-trade-how-we-measure-them/
- Meijburg & Co, EU Simplification Omnibus Initiative, https://www.meijburg.com/news/eu-simplification-omnibus-initiative-new-plan-eus-sustainable-prosperity-and-competitiveness#:~:text=Carbon%20Border%20Adjustment%20Mechanism%20(CBAM,production%20in%20non%2DEU%20countries
- European Parliament, Carbon Border Adjustment Mechanism: Policy Brief, https://www.europarl.europa.eu/RegData/etudes/BRIE/2020/603501/EXPO_BRI(2020)603501_EN.pdf
- European Commission, EU Climate Strategies and Targets, https://climate.ec.europa.eu/eu-action/climate-strategies-targets_en
- Greenly, Why a Global Carbon Price is Needed, https://greenly.earth/en-gb/blog/ecology-news/why-a-global-carbon-price-is-needed
- European Commission, About the EU Emissions Trading System (EU ETS), https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets/about-eu-ets_en
- European Commission, Carbon Leakage and Free Allocation, https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets/free-allocation/carbon-leakage_en
- European Central Bank, Author Profile: Justus Boening, https://www.ecb.europa.eu/pub/research/authors/profiles/justus-boening.en.html?utm_source=chatgpt.com
- EUR-Lex, Regulation (EU) 2023/956 Establishing the CBAM, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R0956#d1e32-90-1
- European Commission, CBAM Guidance, https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en#guidance
- European Commission, CBAM Frequently Asked Questions (Nov 2023), https://taxation-customs.ec.europa.eu/system/files/2023-11/CBAM%20Frequently%20Asked%20Questions_November%202023.pdf
- International PtX Hub, CBAM Implications for PtX Imports to the EU, https://ptx-hub.org/wp-content/uploads/2023/12/International-PtX-Hub_202312_CBAM-implications-for-PtX-imports-to-the-EU.pdf
- Greenly, Our Guide to the EU Omnibus Regulation, https://greenly.earth/en-gb/blog/company-guide/our-guide-to-the-eu-omnibus-regulation
- Greenly, Our 2023 Guide to the UK Emissions Trading Scheme (ETS), https://greenly.earth/en-gb/blog/company-guide/our-2023-guide-to-the-uk-emissions-trading-scheme-ets
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