CBAM's Definitive Phase Begins. The First Real Test Is Data, Not the Carbon Price

On 1 January 2026 the European Union's Carbon Border Adjustment Mechanism moved from its transitional reporting phase into its definitive regime. CBAM puts a carbon price on the emissions embedded in imports of cement, iron and steel, aluminium, fertilisers, electricity and hydrogen, so that imported goods face a cost comparable to that borne by EU producers under the Emissions Trading System. Under the definitive regime, importers bringing in more than a single mass-based threshold of 50 tonnes of CBAM goods a year must be authorised CBAM declarants.

They declare the emissions embedded in their imports and surrender certificates priced on the basis of ETS auction prices, calculated as a quarterly average in 2026 and a weekly average from 2027. The definitive phase is the point at which CBAM stops being a reporting exercise and starts to cost money. Our view is that the first year will be decided less by the level of the carbon price than by the quality of emissions data.

The EU's free allocation of emissions allowances to industries at risk of carbon leakage is being phased out as CBAM is phased in. For exporters to the EU, the effect depends on the carbon intensity of their production and on whether they pay a carbon price at home. The definitive regime introduced a single mass-based de minimis threshold of 50 tonnes a year, following the simplification agreed in 2025. Default values are designed to be higher than the actual emissions of most producers, so that relying on them is costly.

CBAM has been criticised by several major trading partners, including India, China, South Africa and Brazil, as a unilateral trade measure that disadvantages developing countries. Three indicators will show how CBAM is working in its first definitive year. CBAM's definitive phase is a landmark in climate policy: the first major attempt to price carbon in imported goods.