The CBAM is part of the EU's climate change mitigation strategy embodied in the European Green Deal and implemented by the Fit for 55 package, which targets at least a 55% net greenhouse gas (GHG) emission reduction by 2030 below 1990 levels and climate neutrality by 2050. The Fit for 55 package combines carbon pricing, sectoral regulations and financial support across the EU economy. It aims to strengthen the EU ETS – raising its 2030 reduction target to 62% below 2005 levels – while reducing carbon leakage through the CBAM. The CBAM was proposed in 2019 by the European Commission, and the CBAM Regulation 2023/956 was published in May 2023 and amended in October 2025 (Figure 1.1).
Advancing the Implementation of the EU Carbon Border Adjustment Mechanism
Lessons from Romania
Source: Authors.
As the EU have raised the stringency of its carbon pricing policy, concerns over carbon leakage have increased. This phenomenon occurs when production and related emissions relocated abroad due to the introduction or intensification of domestic mitigation policies (Fowlie and Reguant, 2018[1]; OECD, 2020[2]; Climate Club, 2024[3]; Climate Club, 2024[4]). It can raise global emissions if production moves to more emission-intensive jurisdictions, weakening domestic mitigation policy effectiveness, or lower them if production shifts to less emission-intensive jurisdictions, resulting in negative carbon leakage (Grubb, Hope and Fouquet, 2002[5]; Fullerton, Karney and Baylis, 2011[6]). Coverage by and levels of carbon pricing vary strongly globally (Figure 1.2). Explicit carbon pricing instruments – ETSs and carbon taxes – cover about 29% of global GHG emissions in 2025 (OECD, 2025[7]; World Bank, 2026[8]). Average ETS allowance prices on covered emissions are around EUR 21 per tCO2e in 2023-2025 (OECD, 2025[7]).The EU and its Member States account for some of the higher explicit carbon prices globally.
2023, based on 79 countries, in 2023 EUR/tCO2e
Note: Explicit carbon rates are the sum of carbon taxes – taxes for which the rate is explicitly linked to the carbon content of the fuel or where the tax is levied directly on GHG emissions (irrespective of whether the resulting carbon price is uniform across fuels and GHGs) – and ETS permit prices – the price of tradable emission allowances in mandatory ETSs representing the opportunity cost of emitting an extra unit of CO2e, regardless of the allocation method. Explicit carbon rates do not take into account free allowances. Explicit carbon rates are averaged across CO2e emissions from energy use, including those emissions that are not covered by any carbon pricing instrument, for each of the countries. The EU ETS additionally covers Norway, Iceland and Liechtenstein, however the latter is not in the data. All rates are expressed in 2023 EUR. Prices are rounded to the nearest eurocent. Industry CO2 emissions from energy use only. The data on CO2 emissions from energy use are based on the IEA World Energy Balances.
Source: Authors, based on OECD (2025[7]).
Ex-ante studies generally estimate carbon leakage rates between 5 and 30%, a range confirmed by recent ex-post evidence. Modelling studies imply that 5 to 30 tonnes of additional emissions abroad may offset every 100 tonnes of emissions reduced domestically (Branger and Quirion, 2014[9]; Carbone and Rivers, 2017[10]; Cameron and Baudry, 2023[11]). A recent OECD study suggests that without the CBAM, EU ETS reforms could lead to a carbon leakage rate of around 19%, with emission-intensive and trade-exposed sectors such as iron and steel, cement and aluminium particularly exposed (Dechezleprêtre et al., 2025[12]). Recent ex-post evidence points to similar magnitude. Firm-level studies show stricter EU climate policies increased outward investment by German and Italian firms towards less regulated jurisdictions (Koch and Basse Mama, 2019[13]; Borghesi, Franco and Marin, 2019[14]), while aggregate estimates for the EU range from 13% to 23% over recent periods, depending on sectors, timeframes and methodological assumptions (Kuusi et al., 2020[15]; Misch and Wingender, 2021[16]; Böning, Di Nino and Folger, 2023[17]; Teusch et al., 2024[18]).
The CBAM applies a carbon price on imports of certain emission-intensive and trade-exposed goods aligned with the EU ETS price (European Commission, 2025[19]). Ex-ante studies suggest that the CBAM would reduce carbon leakage and even generate negative leakage by encouraging emission reductions in third countries (European Commission, 2021[20]; Dechezleprêtre et al., 2025[12]).
In addition, CBAM design features aim at ensuring compatibility with the EU's international commitments (European Parliament and Council, 2023[21]). Compatibility with the rules of the World Trade Organisation (WTO) is instrumental for preserving the economic gains of international trade and improving acceptance by the EU's trading partners (OECD, 2020[2]). Allowing the use of verified actual emissions and the deduction of carbon prices already paid abroad are key features that would enable CBAM to closely mirror the EU ETS (Holzer, Espa and Cottier, 2022[22]; Espa, Francois and van Hasselt, 2022[23]; Mehling and Ritz, 2023[24]). Additionally, by relying on actual data, the CBAM also accounts for the effects of other policies (e.g., regulations, subsidies) on emissions. This design could incentivise global decarbonisation efforts, as exporters to the EU could reduce their CBAM costs by producing goods with a lower emission intensity (Clausing et al., 2024[25]).
The CBAM is being implemented in two phases: a transitional period (October 2023-2025) focused on emissions reporting without financial obligations, and a definitive period started in 2026, during which importers must purchase CBAM certificates (Figure 1.3).
Source: carboneer, based on CBAM Regulation 2023/956 and CBAM Implementing Regulation 2023/1773 laying down the rules during the transitional period (European Commission, 2023[26]).
While the transitional period was meant to serve as a learning and preparation period, the definitive period shifted from reporting-only obligations to a carbon pricing mechanism with financial implications. In the definitive period, only authorised CBAM declarants may import CBAM goods. They must submit annual declarations – starting with 2026 imports due by 30 September 2027 – purchase and surrender CBAM certificates priced in line with EU ETS allowances to cover their embedded emissions and deduct effective carbon prices already paid in the country of origin. Compliance rules are stricter, including with mandatory third-party verification. This phase also coincides with the gradual phase-out of EU ETS free allowances, creating a synchronised approach where EU domestic producers face lowering free allowances while importers face increasing CBAM financial adjustment (Figure 1.4). In July 2026, the European Commission proposed extending these trajectories from 2034 to 2038, subject to negotiation and approval by the European Parliament and Council (European Commission, 2026[27]).
Source: Authors.
The CBAM Regulation 2023/956 establishes several evaluation milestones to assess implementation progress and inform future policy decisions (Annex A). Article 30 lists the evaluations that the European Commission shall conduct during both the transitional and definitive periods:
Regular assessments of data quality and reporting compliance during the transitional period, using these evaluations to refine methodologies and identify potential enforcement challenges;
A report evaluating CBAM implementation during the transitional period, published in December 2025 (European Commission, 2025[28]);
A report on potential extension to additional products further down the value chain of CBAM goods, published in December 2025 (European Commission, 2025[29]);
Biennial reports – the first one due by the end of 2027 – on the implementation of CBAM, containing information on the impact on carbon leakage, covered sectors, industries using covered goods, the internal market, inflation and prices of commodities, international trade, and least developed countries (LDCs). These reports will also include an assessment of the governance system, the mechanism’s scope, circumvention practices, penalties, and aggregate information on emission intensity of covered goods by country of origin.
In addition, the European Commission has put forward several legislative proposals to amend the CBAM Regulation 2023/956, including measures to simplify and strengthen the CBAM (European Commission, 2025[30]), extend its scope to downstream goods and reinforce anti-circumvention measures (European Commission, 2025[31]), and establish a Temporary Decarbonisation Fund for CBAM sectors (European Commission, 2025[32]). These proposals remain under negotiation at the European Parliament and Council at the time of writing.
Technical milestones include the ongoing development of the definitive CBAM Registry and the establishment of a Common Central Platform (CCP) for the sale and purchase of CBAM certificates. While rules for the definitive CBAM Registry have been adopted in the Implementing Regulation 2024/3210 (European Commission, 2024[33]), the CCP is still under development. The sale of CBAM certificates was thus postponed to February 2027. CBAM declarants must nonetheless report embedded emissions of their imports of CBAM goods in 2026. From 2027, the system should operate end-to-end, combining quarterly certificate-coverage checks with annual reconciliation of customs declarations, verified embedded emissions, and acquired and surrendered CBAM certificates.
The development of a multi-dimensional framework encompassing data quality and compliance metrics could support NCAs to ensure effective implementation during the definitive period (Recommendation 1).
Indicative timeline: Short term
Objectives and description: While CBAM impacts on covered sectors and trade flows are difficult to assess and timelines and procedures are tight and complex, building expertise and developing CBAM-related metrics to assess impacts, support compliance, and contribute to policy discussions (e.g., on extension to additional sectors and emissions) – is essential for effective CBAM implementation. This could include:
1. Developing specific metrics or collect qualitative information can inform the status of CBAM implementation. This includes, for example:
The percentage of importers meeting quarterly and annual reporting deadlines;
The completeness and accuracy of emission reporting;
The proportion of CBAM declarations using actual emission data versus default values;
The number of importers applying and obtaining the status of authorised CBAM declarant;
Qualitative information on the awareness of emission accounting and development of capabilities within CBAM stakeholders (e.g., importers, declarants, Customs, service providers);
Qualitative information on the establishment of supplier relationships;
The availability and accreditation of third-party verifiers;
Changes in import patterns;
Changes in average emissions embedded in CBAM goods;
Qualitative information regarding shifts in supplier relationships.
2. Building expertise to contribute to policy discussions and anticipate changes to the CBAM Regulation that could affect its implementation. This could be done by:
Mapping CBAM exposure by identifying sectors and firms most affected by engaging with academia, think tanks and industry stakeholders (Recommendation 17);
Organising training for staff in carbon accounting, economic analysis, trade law and WTO rules;
Fostering peer learning and sharing of expertise between CBAM NCAs and EU ETS teams working on EU ETS implementation and policy developments;
Participating to the European Commission’s CBAM informal expert group gathering NCAs, Customs Authorities, sectoral representatives, the civil society, third countries and relevant international organisation including the OECD;
Cooperating with other Member States to share assessments of impacts and related challenges.
The implementation of CBAM hinges on effective collaboration among multiple institutional bodies. This multi-agency approach involves four primary categories of stakeholders, each with distinct responsibilities and operational roles, and is designed to help address the complex technical requirements associated with embedded emissions calculations, enforcement of CBAM obligations and verification processes. The complexity of CBAM implementation reflects the need for coordination across multiple regulatory levels and stakeholder groups.
The European Commission acts as the central coordinator and regulatory architect of CBAM. It issues detailed guidance and develops secondary legislation while overseeing the CBAM Registry and reviewing declarations for accuracy. It manages the weekly pricing of CBAM certificates based on EU ETS benchmarks and monitors implementation progress, with the capacity to adjust methodologies and propose legislative refinements. It ensures consistent implementation across Member States through coordination with NCAs and Customs Authorities. Finally, it maintains dialogue with non-EU partners and in international fora1 to facilitate understanding of CBAM requirements and encourage compliance among producers located abroad. In addition, the European Commission and several Member States provide technical and financial assistance and capacity-building initiatives to support non-EU countries through regional and bilateral programmes (European Commission, 2024[34]).
NCAs are the primary national-level enforcement bodies, responsible for authorising CBAM declarants, managing registry access, and ensuring compliance through monitoring, penalties, and ex-post reviews of declarations. They may revise emissions calculations and require additional certificate surrender where needed. Effective implementation relies on close coordination with Customs Authorities and sectoral stakeholders, enabling information sharing, integration of technical expertise, and alignment with existing regulatory frameworks.
Customs Authorities play a crucial operational role in CBAM implementation by conducting border checks and ensuring accurate declaration of CBAM-relevant data at points of entry. These tasks are essential for applying regulatory thresholds. They also inform importers of their CBAM obligations and work closely with NCAs to cross-check customs and registry data. This coordination strengthens enforcement by identifying discrepancies and supporting compliance monitoring.
CBAM declarants, comprising importers and indirect customs representatives2, bear the primary responsibility for compliance. This includes collecting detailed emissions data from non-EU suppliers, ensuring third-party verification from 2026, and purchasing and surrendering CBAM certificates reflecting embedded emissions. They must meet authorisation requirements and maintain robust reporting systems while managing complex supply chains and data verification processes. Compliance is resource-intensive, with risks of penalties for inaccuracies and ongoing challenges due to evolving regulatory requirements and methodological updates.
References
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← 1. This includes the United Nations Framework Convention on Climate Change (UNFCCC) and Conferences of Parties (COPs), G7, G20, the WTO, the OECD, including the Inclusive Framework on Carbon Mitigation Approaches (IFCMA), the Climate Club.
← 2. Indirect customs representation is a form of delegation to carry out customs formalities (European Commission, 2025[35]). In this situation, the customs representative is responsible for the actions performed by him on the name of the economic operators. In case of direct customs representation, the economic operator is responsible for the actions performed by the customs representative on the name of the former.