Latest developments in the Carbon Border Adjustment Mechanism (CBAM)

Simplification agreement (June 2025)

On June 18, 2025, the Council of the EU and the European Parliament reached a provisional agreement to simplify CBAM procedures. This is part of the broader “Omnibus I” legislative package.

Key changes:

• New exemption threshold: Importers of fewer than 50 tonnes per year of CBAM goods are exempt. This de minimis exemption is expected to exclude around 90% of importers, mostly SMEs and individuals, while still covering 99% of embedded emissions¹.
• Streamlined procedures: Easier authorization, emissions reporting, and certificate management for those still in scope.
• Operational clarity: Clearer rules for penalties, customs reps, and the central CBAM platform.

These updates aim to reduce red tape while still covering 99% of embedded emissions in CBAM goods.

¹Carbon border adjustment mechanism (CBAM): Council and Parliament strike a deal on its simplification
 

Commission Proposal (February 2025)

On February 26, 2025, the European Commission proposed targeted amendments to CBAM Regulation (EU) 2023/956 to streamline compliance. This was in response to:

• Business feedback on administrative burdens
• The Budapest Declaration² and Draghi’s report³ calling for regulatory simplification

The proposal maintains CBAM’s climate goals while making it more SME-friendly and cost-efficient.

²Budapest Declaration on the New European Competitiveness Deal
³ The Draghi report on EU competitiveness
 

How CBAM certificates work

At the heart of CBAM is a certificate-based system that mirrors the EU Emissions Trading System (ETS). These certificates ensure that imported goods face a carbon cost equivalent to that of EU-produced goods.

3.1. What are CBAM certificates?

CBAM certificates represent the carbon emissions embedded in imported goods. Importers of certain carbon-intensive products (like cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen) must purchase these certificates to offset the carbon emissions associated with the production of those goods outside the EU. Each certificate corresponds to 1 ton of CO₂ equivalent.

3.2. How are certificates purchased?

• Importers must be authorized CBAM declarants and registered in the CBAM Registry.
• Certificates will be sold via a central EU platform, with sales starting in February 2027⁴.
• The price of certificates will reflect the average weekly cost of EU ETS allowances during the year of import. For example, certificates for 2026 imports will be priced based on 2026 ETS prices, even though they are purchased in 2027⁵.

3.3. Why the delay to 2027?

Although the definitive CBAM regime begins in 2026, the sale of certificates is delayed until February 2027. This delay was introduced to:

• Address uncertainties in the first year of full implementation.
• Allow time to finalize the CBAM Registry and central platform.
• Ensure smoother coordination between national authorities and the EU system⁶.

3.4. The 50% allocation rule

Starting in 2026, when the definitive CBAM regime begins, importers will only need to surrender CBAM certificates for 50% of the embedded emissions in their imported goods. This is part of a gradual ramp-up:

• 2026: 50% of emissions covered by CBAM certificates.
• 2027–2034: The percentage increases annually, in line with the phase-out of free ETS allowances for EU producers.
• By 2034: Importers will need to surrender CBAM certificates for 100% of embedded emissions.

This phased approach ensures a level playing field between EU and non-EU producers during the transition, avoiding sudden cost shocks for importers while supporting EU industry’s decarbonization.

⁴ Proposal for a regulation of the european parliament and of the council amending regulation (EU) 2023/956 as regards simplifying and strengthening the Carbon Border Adjustment Mechanism page 7, Articles 1(15) and 1(18), Article 1(16)

^5,6 Proposal for a regulation of the european parliament and of the councilamending Regulation (EU) 2023/956 as regards simplifying and strengthening the Carbon Border Adjustment Mechanis
 

Adjustments for carbon price paid abroad

If a carbon price was already paid in the country of origin, importers can claim a reduction in the number of certificates they must surrender. This avoids double carbon pricing and ensures fairness.
 

Penalties for non-compliance

Importers who fail to surrender the required number of certificates by the annual deadline (May 31) may face:

• Financial penalties
• Suspension of import rights for CBAM-covered goods
   

July 2025 updates: Consultation on CBAM scope expansion

On July 1, 2025, the European Commission launched a public consultation to assess the potential extension of the CBAM to include downstream products, alongside new anti-circumvention measures and revised rules for the electricity sector⁷.

This initiative reflects growing concerns about carbon leakage risks further down the value chain, particularly in sectors such as steel and aluminum, where downstream goods may escape carbon pricing under the current CBAM scope.

The consultation is open to a wide range of stakeholders, including EU and non-EU producers, trade associations, NGOs, academic institutions, and public authorities - until August 26, 2025.

Furthermore, on July 3, 2025, the Commission announced plans for a proposal aimed at mitigating the risk of carbon leakage for EU exporters operating in CBAM-covered sectors, expected by the end of 2025. It will introduce a temporary support mechanism to maintain equal treatment between domestic, imported, and exported goods, while aligning with the broader goals of the EU ETS reform set for 2026⁸.

⁷ CBAM: Public consultation on the extension of CBAM to downstream products
⁸ CBAM: Commission announces plan to mitigate carbon leakage risk for exporters