In December 2019, the European Union (EU) launched the "European Green Deal", a roadmap aimed at achieving environmental protection, efficient resource utilization, decarbonization and climate neutrality by 2050.
The Carbon Border Adjustment Mechanism (CBAM) is one of the pillars of this green New Deal. The CBAM aims to reform and complement the EU Emissions Trading System (EU ETS). Its original design intention is to "fairly price the carbon emissions generated during the production process of carbon-intensive products entering the EU and encourage non-EU countries to adopt cleaner industrial production methods". This mechanism ensures that the carbon cost of imported goods is consistent with that of domestic production in the EU by setting a price for the embodied carbon emissions during the production process of imported goods, thereby avoiding a impact on the EU's climate goals. Therefore, the EU's goal is to prevent "carbon leakage" - that is, enterprises that produce carbon-intensive products (such as aluminium) shift their production to non-EU countries with lower carbon costs to avoid the high carbon costs of the EU, and then import their products back into the EU. Another significance of CBAM lies in promoting clean production in non-EU countries while ensuring that producers within the EU subject to greenhouse gas emission regulations can compete in a fair environment.
Implementation schedule
The CBAM was initiated in May 2023 through EU Regulation 2023/956 and came into effect on October 1 of the same year. Currently, it is in a "transition period" (with no actual financial impact), and this stage will end in December this year. During the transition period, importers of the relevant products covered by CBAM need to submit reports on the import volume and embodied greenhouse gas emissions on a quarterly basis, but no fees are required.
The European Union recently confirmed that the complete CBAM system will be launched on January 1, 2026 - at least in a simplified form. Despite the current procedural uncertainties (for instance, three public consultations are still ongoing), the European Commission still plans to pass the relevant implementation bill in the fourth quarter of 2025. This means that starting from January 2026, the EU will shift from a reporting system to an actual charging system for carbon emissions from the production of carbon-intensive products such as aluminium.
At present, many enterprises are troubled by the complexity of CBAM calculation, such as: How to define the applicable rules? How to declare the carbon emissions of products? How is the carbon price in a third country determined? Even under the simplified CBAM, importers still need to hold a CBAM certificate.
Simplified measures allow for exceptional circumstances, such as the use of default values or estimated values when actual data cannot be obtained or verified. Small importers with an annual import volume of less than 50 tons will be exempted. In addition, the certificate purchase process has been simplified, and the payment deadline for certificates imported in 2026 has been extended to February 2027.
The certificate price will be linked to the average auction price of the EU Emissions Trading System (ETS) last week, but the compliance price for 2026 will be calculated based on the quarterly average price of the EU ETS for the quarter of goods imports.
Further consultation and research
One of the three public consultations currently affecting importers of aluminum-containing products concerns whether the CBAM scope should be expanded to downstream products at the request of institutions such as the European Aluminium Association to avoid market distortions. These institutions believe that the current version of the CBAM may stimulate the production of aluminum-intensive downstream products outside the EU, thereby weakening the original intention of the CBAM to prevent carbon leakage. This move may expand the coverage of CBAM to multiple industries that were previously unaffected.
A study commissioned by the European Aluminium Association shows that the current CBAM design may actually accelerate carbon leakage in the aluminium industry due to risk avoidance (especially by falsely reporting the content of recycled aluminium/scrap, as scrap aluminium is exempt from CBAM fees). This study indicates that importers need more transparent regulatory mechanisms, more precise reporting rules and obligations, especially in the calculation and declaration of product carbon footprints and the content of recycled aluminum/scrap. The unverified content of waste materials does indeed pose a significant risk of avoidance.
In addition to the inquiries that may trigger adjustments to the CBAM rules, the ongoing trade negotiations also affect some importers. For instance, the European Union recently reached an agreement with India. The EU will recognize India's Emissions Trading System (ETS), thereby reducing the CBAM burden faced by Indian products.
Conclusion
Although there are still many uncertainties regarding the specific rules of the CBAM and the way it applies to various products, it is an established fact that the EU CBAM will come into effect on January 1, 2026 and be implemented for a long time. Many countries have announced that they will follow the example of the European Union and launch their own CBAM plans.
Therefore, enterprises can no longer wait for the policy to become clearer and must immediately prepare for the full implementation of CBAM. Key measures include: identifying CBAM covered products, collecting full-process emission data and establishing a dynamic update mechanism (or obtaining default values), preparing a CBAM certificate procurement budget (and taking it into account in supplier selection and price negotiations in 2026 and subsequent years), tracking legislative progress, and participating in relevant consultations and inquiries, etc.
