- The Carbon Border Adjustment Mechanism (CBAM) is a carbon tariff introduced by the European Union to put a fair price on the carbon emitted during the production of carbon-intensive goods imported into the EU. 

- Its primary objective is to address the issue of carbon leakage, where EU manufacturers move carbon-intensive production to countries with less stringent climate policies. potentially leading to an overall increase in emissions.

a. Transitional Phase (October 1, 2023 - December 31, 2025) 

i. The CBAM officially began on October 1, 2023. During this period, importers are required to report the greenhouse gas emissions embedded in their imports of certain carbon-intensive goods, including cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen.
ii. Importers will not need to purchase CBAM certificates during this phase; they only need to report emissions data. The first reporting period will conclude on January 31, 2024.

b. End of Transitional Phase (December 31, 2025):

i. By the end of this phase, importers must have "authorised CBAM declarant" status to qualify for importing in-scope goods.

c. Definitive Regime (Starting January 1, 2026):

i. From this date, the CBAM will require importers to purchase CBAM certificates corresponding to the carbon emissions of their imports, reflecting the carbon price in the EU Emissions Trading System (ETS). This phase will gradually introduce financial obligations related to carbon emissions.

d. Full Implementation (by 2030) 

i. The CBAM is expected to cover all products subject to the EU ETS by 2030, expanding its scope significantly beyond the initial sectors.

a. The initial focus is on sectors that are at high risk of carbon leakage due to differences in carbon pricing and regulations between the EU and other countries. The products covered under CBAM include:

- Cement: Various types of cement products.
- Electricity: Imported electricity, with specific reporting requirements for emissions.
- Fertilisers: Includes nitrogenous fertilisers and other chemical fertilisers.
- Aluminium: Various aluminium products, including those derived from aluminium.
- Iron and Steel: This includes a wide range of iron and steel products, as well as derivatives like screws and bolts.
- Hydrogen: Specifically hydrogen produced with significant carbon emissions.
- Certain Chemicals: Some chemicals that fall under the high-emission categories.

b. Companies should review the products they export to the EU from non-EU countries and compare them to the list of CN codes in Annex I to determine if they have reporting obligations. Even if companies themselves do not have direct reporting obligations under CBAM, they may sell products to customers who do have such obligations to ascertain the embedded carbon in their products. These customers might require assistance in this regard.
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- Companies can use default values for calculating embedded emissions under the Carbon Border Adjustment Mechanism (CBAM) until June 30, 2024. During this initial period, which encompasses the first three quarterly reports (Q4 of 2023 and Q1 & Q2 of 2024), there are no quantitative limits on the use of these default values.

- From July 1, 2024, until the end of the transitional period on December 31, 2025, companies may continue to report emissions based on estimations, but this will be restricted to complex goods and limited to a maximum of 20% of the total embedded emissions reported.