Understanding CBAM and its implications

As part of the Fit for 55 package, the European Union (EU) is revamping its Emissions Trading System (ETS), expanding its scope, tightening the annual cap and phasing out free allowances.

While these measures accelerate decarbonisation, they also increase carbon prices and raise the risk of production or purchasing shifting to countries and territories with weaker climate rules (carbon leakage).

To address this, the EU introduced the Carbon Border Adjustment Mechanism (CBAM). Effective since October 2023, CBAM imposes a carbon charge on certain imports, matching the cost faced by EU producers under the ETS and replacing free allowances for high-risk sectors. This levels the playing field, encourages global decarbonisation, and protects EU industry from unfair competition.

The regulation entered into force on 17 May 2023, with reporting obligations commencing on 1 October 2023. Recent CBAM simplifications, officially adopted in October 2025, introduced changes such as a de minimis threshold and reduced administrative burdens for businesses. By 2030, CBAM is expected to expand to all sectors covered by the EU ETS.

Russell Smyth

Partner, Head of Sustainable Futures and Corporate Finance

KPMG in Ireland

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Commodities covered

CBAM currently applies to carbon-intensive goods imported from outside the EU, including:

Cement
Electricity, noting that electricity generated within the Exclusive Economic Zone (EEZ) or continental shelf of an EU member state is now excluded.
Fertilisers
Aluminium
Iron and steel
Hydrogen
Selected upstream and downstream iron, steel and aluminium products

Under the Omnibus simplification, importers with less than 50 tonnes of covered goods are exempt from CBAM, removing 90 per cent of importers from scope while still capturing 99 per cent of carbon emissions.

The threshold is reviewed annually and may be adjusted to maintain the 99 per cent target coverage.

The threshold does not apply to electricity and hydrogen. Imports from countries participating in or linked to the EU ETS (currently Iceland, Norway, Liechtenstein, Switzerland and five other territories) are excluded.

Where actual emissions data is used to determine CO2 emissions, any carbon price paid in the country of origin can be deducted from the CBAM charge.

Where default values are used, only the default carbon price for that country, as published by the European Commission (starting in 2027), will be considered.

Compliance requirements

CBAM introduces new compliance requirements and financial obligations for importers of covered goods. An initial transitional phase (from 1 October 2023 to 31 December 2025) focused on emissions reporting, while the operational phase (from 1 January 2026) will require the purchase and surrender of CBAM certificates.

Companies must prepare for retrospective financial obligations for 2026 imports, with payments due in 2027.

The key requirements for CBAM include:

Calculate emissions using verified actual or EU default values.
Verify actual data through an accredited verifier (if not using registered producer or default data).
Purchase certificates via the EU central platform once available.
Submit annual CBAM declaration by 30 September each year.
Surrender certificates equal to verified embedded emissions by 30 September.

Compliance timeline

1 January 2026
31 March 2026
1 February 2027
30 September 2027
31 October 2027

Start of the definitive CBAM regime

Goods will not be released into the EU market unless the importer has been registered as CBAM declarant and has been verified by customs authorities.

Registration of authorised declarants

From 31 March 2025, CBAM importers can apply for status of CBAM declarants in respective Member State and register via the CBAM portal.

Sale of CBAM certificates starts

CBAM certificates will be available from 2027 via a European Commission platform.

First CBAM Declaration and certificate surrender due

CBAM declarations must be submitted via the CBAM register, accessible to authorised declarants through a unique account number. Declarations include total quantities, embedded emissions, and the number of certificates to be surrendered.

Repurchase of CBAM certificates

Over-purchased certificates can be repurchased by submitting a request by October 31 of the year of surrender, limited to the obligatorily purchased quantity at the original purchase price

What does this mean for your business?

CBAM represents a structural shift in how carbon costs are managed across global supply chains. For many businesses, the most significant impact will not be compliance alone, but the progressive increase in import-related carbon costs as free ETS allowances are phased out.

Immediate actions for your business

Understand CBAM compliance requirements and potential impact

Early and accurate collection of emissions data across supply chains is essential to assess how CBAM will affect your business and to ensure compliance with evolving regulations.
Review global supply chain and CN (HS) codes for in-scope products

Conduct a strategic review of your sourcing, supply chain, and customs processes, focusing on identifying products subject to CBAM and evaluating the availability of necessary data.
Prepare for reporting obligations and registration

Factor CBAM costs into budgets and forecasts now to avoid surprises and ensure your organisation is ready to meet new reporting and registration requirements.
Engage with in-scope vendors

Collaborate closely with suppliers affected by CBAM to facilitate data sharing and compliance and monitor regulatory updates as CBAM scope and requirements expand.

Key actions for your business from 2026 to 2027

Calculate embedded direct and indirect emissions

Establish robust processes for calculating the embedded emissions of imported goods, using either actual values or default values as permitted under CBAM.
Verify actual emissions values

Where actual values are used, ensure verification is conducted by an accredited verifier to meet regulatory standards and support accurate reporting.
Acquire CBAM certificates

Secure the necessary CBAM certificates via the relevant CBAM authority to cover the carbon cost of imports and maintain compliance with EU regulations.
Prepare and file annual CBAM declarations

Develop systems to prepare and submit the annual CBAM declaration by 30 September each year, ensuring all required information is complete and accurate.

How KPMG can help

KPMG Ireland offers integrated support to help you navigate CBAM and broader decarbonisation challenges. Our multidisciplinary team combines expertise in climate change, global trade and customs, ESG, and tax and legal to deliver practical, tailored solutions.