On 1 January 2026, the EU Carbon Border Adjustment Mechanism (CBAM) entered its compliance phase, bringing the 2023-2025 transitional period to an end. CBAM is a key element of the EU's climate policy, designed to prevent carbon leakage by ensuring that imported goods face a carbon cost comparable to domestic products under the EU ETS. The transition to the compliance phase marks a significant step in operationalizing this mechanism and influencing global carbon pricing practices.
Following the adoption of the EU's "Omnibus" simplification package, importers bringing 50 tons or more of CBAM-covered goods per year into the EU must declare the embedded emissions of their imports and surrender the corresponding number of CBAM certificates the following September. The first declaration and surrender deadline will be 30 September 2027 for emissions embedded in imports during 2026. For 2026 and 2027, free allocations of European Union Allowances (EUAs) under the EU ETS for eligible producers in CBAM-covered sectors will be reduced by 2.5% annually, as CBAM takes effect.
Implementing acts and key changes in the definitive phase
On 16 December 2025, the European Commission published a review report on the application of CBAM during the transitional period. Alongside the report, the Commission also published a package of eight implementing acts and two legislative proposals to complement the CBAM regulation:
| Implementing acts (in force) | Legislative proposals |
| Implementing act on calculation methodology for emissions embedded in goods | Extension of the CBAM scope to downstream goods and anti-circumvention measures |
| Implementing act on free allocation adjustment to the number of CBAM certificates to be surrendered | Establishing the Temporary Decarbonization Fund |
| Implementing act on customs communication | |
| Implementing act on default values | |
| Implementing act on the price of CBAM certificates | |
| Implementing act on verification principles for declared embedded emissions | |
| Implementing act on authorization of CBAM declarants | |
| Implementing act on the CBAM registry |
Key updates from the eight implementing acts include:
- Benchmark alignment with EU ETS: CBAM benchmarks are introduced, mirroring the current EU ETS free allocation benchmarks. These will be reviewed and updated until 1 January 2027 to align fully with the final ETS benchmarks for 2026-2030 once these have been published. The 2026 benchmarks are lower and more stringent than in the initial proposal by the Commission.
- Calculation of CBAM certificates prices: For 2026, the price of CBAM certificates will be calculated based on the quarterly average of EUA auction prices for each of the four quarters. From 2027 onwards, the certificate price will be determined using the weekly average of allowance auction prices. The average price for each quarter of 2026 will apply to emissions from imports during that same quarter, with sales of CBAM certificates beginning on 1 February 2027.
- New country- and product‑specific default emission values for all CBAM-covered goods: These replace the earlier transitional default intensities based on global averages. Each country‑product combination is now assigned to a specific benchmark production route, with default values differentiated into direct, indirect, and total emissions.
- Upward adjustment of default values: Most of the newly established default values will rise by 10% in 2026, 20% in 2027, and 30% from 2028 onwards. This “top-up” is intended to discourage reliance on default values and incentivize importers to report with actual emission values, thereby reducing their CBAM costs. The fertilizer sector will be exempt from these upward adjustments; instead, its default values will increase by 1% annually to account for inflation and to reflect the sensitivities of the EU agricultural sector.
Temporary Decarbonization Fund
The Commission published a legislative proposal for a two-year Temporary Decarbonization Fund to provide targeted financial support to energy-intensive industries that are exposed to an increased remaining risk of carbon leakage. The Fund aims to incentivize industrial decarbonization and mitigate the remaining risk of carbon leakage for eligible EU producers. This primarily targets export-related carbon leakage risks for EU industries with a high share of production going to international markets, where the CBAM does not apply. Support will be proportional and conditional on operators' decarbonization investments. For 2028-2029, 25% of CBAM revenues will be allocated to the Fund, covering production in 2026 and 2027. The Fund is intended as a temporary support measure. The Commission will conduct a comprehensive review of how best to address the remaining carbon leakage risk from 2028 onward, as part of the scheduled EU ETS review.
CBAM extension to downstream goods
The Commission also published a legislative proposal for an extension of the CBAM scope to an additional 180 aluminum‑ and steel‑intensive downstream products, with implementation beginning on 1 January 2028. These downstream products were identified as having the highest and most clearly defined carbon leakage risks, combined with strong technical feasibility for obtaining actual emission values. The impact on consumers is expected to be limited, as more than 90% of the affected downstream products are goods concerning industrial supply chains, while only around 6% are household products. The Commission has also reserved the right to remove specific goods from CBAM's scope should their inclusion lead to serious or unforeseen impacts.
Anti-circumvention measures
Finally, the Commission proposed to introduce additional anti-avoidance measures to address misdeclaration of emission intensities and other abusive practices. These include closing the "scrap loophole" by potentially including pre-consumer aluminum and steel scrap in the CBAM scope, as well as enhancing reporting requirements for better traceability of CBAM goods.
Next steps in 2026-27
Over the next two years the Commission will progress the following workstreams:
Early 2026: The Commission will adopt the implementing act establishing the methodology for deducting carbon prices effectively paid in third countries under CBAM, which is expected to promote a wider global uptake of carbon pricing instruments. In parallel, CBAM benchmarks will be reviewed and updated in 2026, aligning with the final ETS benchmarks for 2026-30. The updated values will be applicable to goods imported from 1 January 2027.
Throughout 2027: Based on experience and data gathered during 2026 (the first year of the compliance phase), the Commission will revise and refine CBAM. This process will include a review of default values and an assessment of potential CBAM scope expansion, such as the inclusion of additional EU ETS sectors at risk of carbon leakage, more downstream goods, and possibly indirect emissions within existing CBAM sectors.
By 31 December 2027: The Commission will present its first biennial report to the European Parliament and the Council on the implementation and functioning of CBAM. Subsequent reports will follow every two years thereafter.
