The CBAM applies to goods listed in Annex I of the CBAM Regulation 2023/956 when imported into the EU customs territory from third countries. Origin is determined under non-preferential rules of origin, based on where goods were wholly obtained or underwent their last substantial transformation. Relevant imports are identified through Combined Nomenclature (CN) codes.1 The CBAM also covers processed goods from inward processing when non-EU inputs are processed in the EU, the resulting goods fall under Annex I, and they are released for free circulation in the EU. The sectors and goods covered by the CBAM along with GHG relevant for determining embedded emissions are depicted in Table 2.1.
Advancing the Implementation of the EU Carbon Border Adjustment Mechanism
Lessons from Romania
Note: The grouping of goods into sectors is the one of the CBAM Regulation 2023/956.
Source: Authors, based on the CBAM Regulation 2023/956.
The initial CBAM scope targets EU ETS sectors at high risk of carbon leakage2 representing a significant share of industrial emissions (European Commission, 2021[1]): iron and steel, cement, fertilisers, aluminium, electricity, hydrogen. The initial scope focuses on basic materials, where embedded emissions can be calculated with greater accuracy, thus reducing administrative complexity for operators and authorities. Some downstream goods closely linked to the primary covered goods (e.g., screws, bolts, structures of iron, steel and aluminium) are also included to limit circumvention risks.
The scope is subject to regular review by the European Commission. The European Commission proposed to include downstream goods of the iron and steel and aluminium sectors in December 2025 (European Commission, 2025[2]). Specific areas for potential extensions are discussed in Annex A.
Certain imports are explicitly excluded from the CBAM scope. This includes annual imports below the 50-tonne annual de minimis threshold3 determined by the amending Regulation 2025/2083 (European Parliament and Council, 2025[3]); military goods; goods from countries covered by (Iceland, Liechtenstein, Norway) or linked (Switzerland) to the EU ETS and territories4; certain electricity imports under conditions; specific ferro-alloys, waste and scrap; and fertilisers containing only phosphorus and potassium.
The CBAM is intended to mirror the EU ETS by pricing embedded emissions in imported goods through CBAM certificates, each corresponding to one tonne of CO2e. CBAM certificate prices are calculated as the weekly volume-weighted average closing price of EU ETS allowances, published by the European Commission and applied to sales in the following week. For 2026 imports, a quarterly average price will apply. Authorised CBAM declarants must purchase and surrender certificates by 30 September each year, the number of CBAM certificates corresponding to the embedded emissions of their previous year's imports. The number of CBAM certificates is reduced to reflect free allowances that equivalent EU producers still receive under the EU ETS and adjusted for any carbon price effectively paid in the country of origin. These rules remain to be finalised at the time of writing. Figure 2.1 shows the formula for determining the number of CBAM certificates to be surrendered.
Source: carboneer.
Implementing Regulation 2025/2620 sets out rules for calculating the free allocation adjustment (European Commission, 2025[4]). The European Commission derives CBAM benchmarks from EU ETS benchmarks, which operators use – together with the CBAM factor and the cross-sectoral correction factor5 – to calculate the share of their products’ embedded emissions covered by free allowanced received by EU-based producer. This is compared with the emission intensity of the imported CBAM goods to determine the number of certificates due, ensuring equivalent carbon pricing between imported CBAM goods and EU production. As free EU ETS allowances are phased out due to the declining so-called CBAM factor (Figure 1.4), importers of CBAM goods will surrender more CBAM certificates, ensuring parity.
Together with emissions embedded, the effective carbon price already paid in third countries is a central determinant of the CBAM financial adjustment. An effective carbon price6 represents the price that applies to a specific emissions base as a result of market-based policy instruments (OECD, 2016[5]), such as carbon taxes or ETS prices7, adjusted for policy features that weaken the average price signal, such as free allowances under cap-and-trade ETSs or reduced tax rates (OECD, 2024[6]). Calculating the effective carbon price paid in imported emissions involves aggregating embedded emissions and the corresponding carbon prices paid (net of reductions across all stages of the production processes, including covered precursors. The assessment of embedded emissions and effective carbon price paid is generally more complex for downstream products (ERCST, 2024[7]).
Once the effective carbon price of a product is estimated, it is compared with the EU benchmark, i.e. the weekly average EU ETS auction price. The CBAM financial adjustment is then calculated as the price difference multiplied by embedded emissions, determining the number of CBAM certificates to be surrendered (Figure 2.1).
The CBAM Regulation 2023/956 defines the effective carbon price as the monetary amount per tonne of emissions paid in a third country under a carbon tax, levy or fee or ETS. It is calculated on GHG emissions covered by such a measure and released during the production of good (European Commission, 2024[8]). The amending Regulation 2025/2083 clarifies that reductions in CBAM certificates will reflect effective carbon prices already paid, either through importer-provided evidence or, from 2027, through European Commission default values by product and jurisdiction. These default values will aim to reflect the actual carbon prices in force in third countries, simplify verification and reduce the administrative burden for NCAs, while encouraging reporting of actual prices
At the time of writing, key elements of crediting foreign carbon pricing under CBAM remain pending. This includes the treatment of rebates and instruments such as compliance offsets, voluntary carbon market (VCM) credits, implicit carbon pricing and non-pricing instruments (Sirressi, 2024[9]). Additional uncertainty concerns export carbon taxes applied by third countries, which could allow them to retain CBAM-related revenues without equivalent domestic pricing (ERCST, 2023[10]). Practices such as offset use in some carbon taxes or ETSs (e.g., South Africa, Korea) are also not currently recognised under the EU ETS, and their potential inclusion in the CBAM remains under discussion.
The CBAM establishes a dedicated MRV framework, with distinct rules for the transitional period and definitive period (Figure 1.3). The CBAM adopted a hybrid approach combining the primary and average data methods as an option to lower costs and circumvent data limitations, but it requires vigilance to avoid double counting, or undercounting emissions and opportunistic behaviour by firms (e.g., by allowing them to choose the method that reports the least emissions) (OECD, 2024[11]; 2025[12]) :
The average data method relies on multiplying primary activity data (e.g., on material weight, fuel consumption) with activity-specific emission factors based on industry averages (Finnveden et al., 2009[13]; Climate Trace, 2025[14]). Average data methods are used for the development of default values under CBAM in case primary data are not available (Subsection 2.3.2). However, these methods can hide differences in carbon intensities among products from the same sector (OECD, 2024[11]);
The primary data method draws on data directly measured or calculated at each stage of the supply chain (WBCSD, 2023[15]). This method generally yields the highest accuracy but can involve higher costs as well.
Legislative changes under the amending Regulation 2025/2083 and Implementing Regulations 2025/2547 (European Commission, 2025[16]), 2025/2546 (European Commission, 2025[17]) and 2025/2551 (European Commission, 2025[18]) refined this framework.
The definitive period starting in 2026 introduced more stringent and comprehensive obligations (Figure 2.2). From 2026, importers above the 50-tonne de minimis threshold must be authorised CBAM declarants. They must submit annual CBAM declarations via the CBAM Registry established under Implementing Regulation 2024/3210 (European Commission, 2024[19]) by 30 September each year, covering the previous year’s imports, according to the amending Regulation 2025/2083. The CBAM declarations must include the quantity of CBAM goods imported, verified direct and embedded emissions, any carbon price effectively paid abroad, and the number of CBAM certificates to be surrendered. For Annex II goods — currently iron and steel, aluminium, hydrogen and electricity — only direct emissions must be reported. CBAM declarants may use either verified actual emissions or default values provided by the European Commission where actual data are unavailable.
Source: carboneer.
2.3.1. Calculating embedded emissions
CBAM declarants ultimately rely on their third-country suppliers to provide data on embedded of embedded emissions. They can use templates provided by the European Commission (European Commission, 2026[20]) or the Operators of Third Countries Installations Portal (O3CI) to upload and share installation-level information directly with CBAM declarants (European Commission, 2025[21]).
From 2025, the primary methodology for calculating actual embedded emissions is a CBAM-specific method, broadly aligned with the EU ETS emission accounting framework. It covers annual emissions from the production process of CBAM goods, excluding emissions from transport and non-production activities. It differs from the EU ETS emission accounting rules by requiring product-level emissions (versus installation-level emissions under the EU ETS), including relevant precursors8, expressed in tCO₂e per tonne of good. The emissions occurring in some downstream production processes (e.g., processing of iron and steel or aluminium products) can be disregarded from the start of the definitive period.
The aggregate amount of embedded emissions in imported CBAM goods is calculated when submitting a CBAM declaration, making CBAM emission accounting rules distinct from other accounting frameworks (Figure 2.3). The CBAM emission accounting rules differ from other GHG accounting frameworks and concepts such as Scopes 1, 2 and 3.
Source: carboneer.
2.3.2. Default values
CBAM prioritises actual verified data, but declarants may use default values where supplier data on embedded emissions, embedded free allocation or carbon prices paid abroad are unavailable (Table 2.2). These default values are published by the European Commission. As default values include mark-ups and are generally conservative, they increase compliance costs and incentivise the use of actual data.
Notes:
1. Based on a report on GHG emission intensities by the European Commission’s Joint Research Centre (2023[22]).
2. Based on data from the International Energy Agency (IEA) covering a 5-year average (IEA, 2024[23]).
3. Set at average emission intensity of each CN code and exporting country combinations increased by a mark-up (10% in 2026, 20% in 2027, 30% from 2028 onwards; 1% for fertilisers regardless of which year) and detailed in Implementing Regulation 2025/2621.
4. Based on the EU ETS benchmarks and detailed in Implementing Regulation 2025/2620.
5. To be determined through an Implementing Act in 2026, in draft version under public consultation at the time of writing.
Source: Authors.
2.3.3. Verification of embedded emissions
During the definitive period, actual embedded emissions and carbon prices effectively paid abroad must be verified by an EU-accredited verifier. Verifiers must be accredited by an EU National Accreditation Body (NAB) under Regulation 765/2008 (European Parliament and Council of the European Union, 2008[24]). This ensures that verifiers possess the necessary competence, impartiality, and technical expertise, and aligns with the accreditation and verification processes under the EU ETS. Accredited verifiers will be registered in the CBAM Registry by the NCA (Subsection 3.1.4) to streamline workflows and enhance system integrity.
The verification process involves the verifier conducting a strategic analysis, a risk assessment, and a detailed examination of the operator's data and processes. This includes on-site visits to third-country production installations to assess monitoring systems, data collection practices and compliance with CBAM calculation and reporting rules. The verifier then issues a verification report confirming the declared embedded emissions with reasonable assurance, or identifying material misstatements, non-conformities and required corrections. Third-party verification applies only where actual data are used: no verification is required when declarants rely on default values.
CBAM’s effectiveness in addressing carbon leakage depends on strong data integrity, enforcement, and anti-circumvention mechanisms. While the amending Regulation 2025/2083 simplifies procedures, challenges remain, particularly regarding the reliability and security of emissions data reported by declarants and third-country producers. The CBAM Registry – building on the Transitional Registry – plays a central role in monitoring compliance and Implementing Regulation 2024/3210 (European Commission, 2024[19]) establishes security and data protection requirements. For the definitive period, robust information technology (IT) infrastructure and strict data-protection protocols is vital to mitigate cybersecurity risks and support enforcement.
Accurate customs data and reliable reporting of embedded emissions and carbon prices are essential for determining CBAM certificate obligations, making robust verification and data exchange between Customs Authorities, the European Commission and NCAs critical to ensuring effectiveness. The European Commission cross-checks customs and CBAM declarations and flags inconsistencies. Detailed verification of emissions and carbon pricing data is delegated to accredited third-party verifiers, like under the EU ETS. Ensuring consistent accreditation and oversight of these verifiers is crucial to avoid divergences across Member States, particularly as different verification approaches apply depending on whether default or actual values are used (Table 2.3).
Source: Authors, based on the CBAM Regulation 2023/956
The European Commission plays a central role in detecting and addressing CBAM circumvention. It is empowered with powers to investigate suspicious patterns reported by Member States or other stakeholders, in coordination with NCAs, within a defined nine‑month timeframe. Potential evasion strategies include exploiting the de minimis threshold through fragmented imports, misclassification of goods, rerouting, or minor product modifications to fall outside CBAM scope, while more systemic practices such as resource shuffling can weaken global effectiveness. Continuous monitoring of trade patterns, combined with the ability to adjust CBAM’s scope through delegated acts, alongside robust reporting, verification, and enforcement frameworks, is essential to preserve environmental integrity and ensure a level carbon pricing playing field.
References
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← 1. CN codes are eight-digit codes used for classifying goods in the EU customs tariff.
← 2. The list of EU ETS sectors deemed at risk of carbon leakage is periodically reviewed. Delegated Decision 2019/708 specifies the EU ETS sectors and subsectors at risk of carbon leakage for the 2021-2030 period (European Commission, 2019[25]).
← 3. This threshold was determined for keeping 99% of emissions still in the CBAM scope and is regularly reviewed to maintain this share.
← 4. Büsingen, Helgoland, Livigno, Ceuta, and Melilla.
← 5. The CSCF is a uniform reduction factor applied in the EU ETS to scale down free allowances proportionally across all installations when the total bottom-up free allocation exceeds the available EU ETS cap.
← 6. Effective carbon prices are sometimes referred to as effective carbon rates in other publications, this report uses effective carbon prices in line with the language in the CBAM legislation. Notably, the OECD’s approach includes fuel excise taxes as implicit carbon rates, but the EU approach does not include these.
← 7. The implicit carbon rates are sometimes included due to fuel excise taxes being proportional to the emissions base it covers; this is not the case for other taxes and levies and are therefore excluded.
← 8. Emissions from EU-origin precursors already covered by the EU ETS should be counted zero to avoid double carbon pricing.