Carbon Border Adjustment Mechanism (CBAM): What Should Businesses Know Today?

Climate change and the necessity to reduce greenhouse gas emissions have become among the most significant economic and political issues for the European Union (EU) in recent years. At the same time, EU climate policy increasingly impacts the day-to-day operations of businesses—not only manufacturers but also importers and other companies involved in international supply chains.

One of the most significant instruments in this field is the Carbon Border Adjustment Mechanism, or CBAM. The objective of CBAM is to prevent so-called carbon leakage and to ensure that a carbon pricing mechanism is applied to the import of certain carbon-intensive goods into the EU, which is essentially comparable to the costs faced by EU producers.

As of January 1, 2026, CBAM has entered into force in the so-called definitive regime; accordingly, for businesses importing goods subject to CBAM regulation, the mere reporting of emissions data is no longer sufficient. They must also prepare for financial obligations related to the acquisition and surrender of CBAM certificates.

Why is CBAM necessary?

The purpose of CBAM is to balance the price of carbon-intensive products between domestic and imported goods. The EU Emissions Trading System (EU ETS), which sets a carbon price for certain emissions produced within the EU territory, has been operational for several years. However, at the same time, EU companies compete with manufacturers from countries where carbon price regulation may be less stringent or non-existent.

In such a situation, a risk exists that companies move production to countries with lower climate regulation costs, or that EU products are replaced in the EU market by more carbon-intensive imported products. Consequently, emissions are not actually reduced—they are merely relocated outside the EU.

Namely, CBAM is intended to mitigate this specific risk—carbon leakage. The mechanism stipulates that for imported goods of certain categories, the embedded emissions generated during their production process are taken into account.

Which goods are subject to CBAM?

Currently, CBAM applies to specific product groups:

a) cement;
b) iron and steel;
c) aluminum;
d) fertilizers;
e) electricity;
f) hydrogen.

The specific list of goods subject to CBAM regulation is set out in Annex I of Regulation (EU) 2023/956; therefore, to determine whether CBAM applies to a specific item, a general product name is insufficient—the relevant Combined Nomenclature (CN) code must also be assessed.

For businesses, this means that CBAM analysis should be performed at the level of the supply chain and customs processes, rather than only at the end of the year when preparing the declaration.

Despite the fact that CBAM currently covers only six sectors, it is expected that the scope of CBAM will be gradually expanded in the future. The European Commission has already indicated that it will evaluate the effectiveness of the CBAM regulation and analyze opportunities to include additional product groups and sectors, particularly those

where a similar high level of carbon emissions and risk of leakage exists. Furthermore, it is expected that over time, increasing importance will be assigned to indirect emissions, especially emissions arising from electricity consumed during the production process. Such an approach would allow for a more complete reflection of the actual carbon footprint of products and ensure more level competition conditions between EU producers and importers.

At the same time, the EU is monitoring the development of carbon pricing mechanisms in other jurisdictions. An increasing number of countries are introducing or planning to introduce their own carbon pricing systems; accordingly, the mutual interaction of these systems with CBAM will be of significant importance in the future. This may affect both the obligations of importers and the possibilities to reduce CBAM liabilities in certain cases if a carbon price has already been paid for the relevant emissions in the country of origin.

To whom are the CBAM requirements binding?

From January 1, 2026, EU importers or their indirect customs representatives importing goods subject to CBAM regulation must assess whether they exceed the cumulative annual threshold of 50 tonnes.

It is important to note that this threshold applies to the total net mass of CBAM goods in the relevant calendar year, rather than to each CN code individually. If the threshold is exceeded, CBAM requirements apply to all CBAM goods imported during the respective year. For electricity and hydrogen, this mass threshold is not applicable (any volume of import must be declared).

An importer exceeding the specified threshold must obtain the status of an authorized CBAM declarant. In Latvia, the competent authority responsible for monitoring the implementation of the CBAM regulation and granting statuses is the State Revenue Service.

What will the company be required to declare?

An authorized CBAM declarant must submit a CBAM declaration for the previous calendar year by September 30. The first declaration for imports carried out in 2026 must be submitted by September 30, 2027.

The declaration must include information regarding:

a) the total quantity of imported CBAM goods;
b) the embedded emissions of these goods;
c) the number of CBAM certificates to be surrendered;
d) where applicable—the carbon price paid in the country of origin;
e) actual emission values—the relevant verification information.

Consequently, a CBAM declaration is not merely a copying of customs data. To prepare it, a company requires information from several parties—customs systems, suppliers, and manufacturers outside the EU, as well as, in certain cases, from accredited verifiers.

Further details on information included in the declaration

1. Quantity of imported goods and CN codes

In the CBAM declaration, imported goods must be specified according to their CN codes and countries of origin. The quantity of goods, except for electricity, is indicated in tonnes, while MWh is applied to electricity.

At this stage, the quality of customs data is particularly vital. The company should be able to identify:

a) which CBAM goods it has imported;
b) what the CN code for each product is;
c) what the imported net quantity is;
d) what the country of origin of the goods is;
e) when the specific product was imported.

Therefore, one of the practical first steps for companies is the identification of CBAM goods and the establishment of separate accounting.

It should be taken into account that the CBAM regulation is not applied to goods whose country of origin is Iceland, Liechtenstein, Norway, or Switzerland. Conversely, for goods originating in other third countries, CBAM requirements are applicable if the specific product falls within the scope of the CBAM regulation.

2. Embedded emissions

At the center of the CBAM system are embedded emissions, namely, greenhouse gas emissions generated during the production process of the goods.

A company has two primary options for determining embedded emissions:

a) to use actual emission values provided by the manufacturer and verified in accordance with the requirements;
b) to use default values determined by the European Commission.

The use of actual values may provide a more precise calculation of CBAM obligations, but at the same time, it requires a significantly larger volume of data and cooperation with manufacturers outside the EU. Meanwhile, default values are administratively simpler to use, but for certain products, they may be higher than actual emissions. The European Commission has published specific default values set out in Implementing Regulation (EU) 2025/2621.

Furthermore, an additional markup is applied to default values in certain sectors. 2026. In 2026, this is 10% for certain sectors, 20% in 2027, and 30% from 2028 onwards. For fertilizers, a smaller markup of 1% is provided.

Therefore, it is essential for a company not only to choose between actual and default values but also to evaluate in a timely manner which approach is economically and administratively more advantageous within the specific supply chain.

Which emissions may need to be taken into account?

Depending on the specific product and sector, the following may need to be considered in CBAM calculations:

a) direct embedded emissions—emissions generated during the production process itself;
b) indirect embedded emissions—emissions related to electricity consumed during the production process;
c) precursor emissions—emissions generated in the production of raw materials used for the manufacture of another CBAM product.

Thus, the calculation of emissions can be much more complex than a simple determination of the total CO₂ emissions of a production plant.

3. CBAM certificates and their price

The CBAM mechanism is based on CBAM certificates. An authorized CBAM declarant must surrender a number of certificates corresponding to the relevant declared embedded emissions, taking into account the reductions provided for in the regulation. 1 CBAM certificate corresponds to 1 tonne of CO₂ emissions.

2026. In 2026, the price of CBAM certificates is determined based on the EU ETS emission allowance auction prices for the respective quarter. From 2027, the price will be calculated as a weekly average.

2026. For the first two quarters of 2026, the European Commission has published the following CBAM certificate prices:

The price for the third quarter of 2026 is scheduled for October 2026, while the price for the fourth quarter is scheduled for January 2027.

The purchase of certificates for 2026 imports will commence in February 2027.

4. Carbon price paid in the country of origin

CBAM is not intended to apply the same carbon price twice. If an importer can prove that a carbon price has actually been paid in the country of origin for the embedded emissions of the specific imported goods, the respective amount may, under certain conditions, be taken into account by reducing the number of CBAM certificates to be surrendered.

However, the mere existence of a carbon pricing system in the respective country is not sufficient. It is necessary to prove that the specific carbon price has actually been paid and that the calculation complies with the requirements of the CBAM regulation.

This requirement may become particularly significant for companies whose supply chains span multiple jurisdictions and whose suppliers are already subject to national carbon pricing systems.

5. Verification—if actual emissions are used

If actual embedded emission values are used in the CBAM declaration, these data must be verified in accordance with the CBAM regulation.

Verification is performed by a CBAM-accredited verifier. The European Commission indicates that the first CBAM verifiers will receive accreditation starting from September 2026.

Verification is carried out at the production plant level. This means that an importer using actual emission values requires effective cooperation with manufacturers located outside the EU—not only for data acquisition but also to provide the information necessary for the verifier.

During the first verification period, which covers 2026 imports, a physical visit to the production plant outside the EU is mandatory. Remote verification is not permitted during the first period.

Therefore, 2026 is effectively a year for data preparation and process establishment for companies. If an importer wishes to use actual emissions, the cooperation with manufacturers and the aggregation of emissions data must be organized already during the time the imports are being carried out.

In this article, we examined the fundamental principles, scope of application, and key requirements of the CBAM regulation for businesses. However, it is essential to understand that successful compliance with CBAM requirements will depend not only on theoretical knowledge but also on timely and practical preparation.

It is important for businesses to already be aware of which goods may fall within the scope of the CBAM regulation and what data will be required for the calculation of emissions.

At the same time, several significant questions still arise for companies in practice, for example:

a) how to calculate potential CBAM costs;
b) what measures the company should take already now to ensure timely compliance;
c) what documents and evidence need to be stored to justify the fulfillment of CBAM requirements;
d) what risks and potential sanctions may arise if CBAM requirements are not observed.

Given that the range of questions is broad and the implementation of CBAM will create practical challenges for many importers, in the next article we will focus on the practical side—we will look at examples of CBAM liability calculations, the assessment of potential costs, and provide recommendations on how businesses can prepare for the new requirements.