What Is CBAM? The EU Carbon Border Adjustment Mechanism and Why US Exporters Need to Care

EU importers of covered goods must purchase 'CBAM certificates' that correspond to the embedded carbon emissions of those goods. The certificate price tracks the weekly average price of EU Emissions Trading System (ETS) allowances. Importers who can demonstrate that a carbon price was already paid in the country of origin receive a corresponding reduction. The mechanism mirrors the carbon costs that EU producers face under the ETS, leveling the competitive playing field.

The transitional phase runs from October 1, 2023 through December 31, 2025. During this period, EU importers must submit quarterly CBAM reports on the embedded emissions of their imports but do not yet purchase certificates. The definitive phase begins January 1, 2026: importers must surrender CBAM certificates for the calendar year by May 31 of the following year, with a gradual phase-in (free allocation reduces over time, reaching zero in 2034).

US producers exporting covered goods to the EU need to provide their EU customers with the embedded direct emissions (Scope 1, from on-site processes) and increasingly the embedded indirect emissions (Scope 2, from purchased electricity) of each shipment. EU importers can use default values during the transitional phase but must use actual installation-specific values during the definitive phase. The data requirements are detailed in the CBAM Implementing Regulations and are non-trivial for facilities that have not previously measured product-level emissions.

CBAM is an EU regulation. It does not apply to imports into the United States. However, US-based companies are affected in two ways: (1) US exporters of covered goods to the EU face the CBAM administrative and cost burden, and (2) several US legislative proposals (the Clean Competition Act, the FAIR Transition and Competition Act, and others) propose a US carbon border adjustment mechanism. None has been enacted as of 2026, but the political momentum is real and importers should track development.

CBAM is structured as a border carbon price, not a tariff in the WTO sense, but the practical effect on competitiveness is similar. The US has not (as of 2026) filed a WTO challenge against CBAM, though several developing countries have raised concerns. Importers should distinguish CBAM-related cost increases on US goods entering the EU from any retaliatory tariff posture, which is currently absent. The longer-term risk is that CBAM and similar mechanisms in other jurisdictions create a fragmented, climate-driven tariff landscape that compounds existing Section 301 and IEEPA complexity.