EU CBAM Transitional Phase Ends: What Importers Need to Know

The EU’s Carbon Border Adjustment Mechanism (CBAM) is set to evolve rapidly as the transitional phase ends at the close of 2025, ushering in the definitive phase with far-reaching implications for import compliance and environmental regulation. Designed to level the playing field by aligning carbon pricing of imported goods with EU emissions costs, CBAM addresses the critical challenge of carbon leakage and supports Europe’s ambitious sustainability goals. As this mechanism begins to enforce actual payments from 2026 onward, importers of carbon-intensive products such as steel, cement, aluminium, fertilisers, hydrogen, and electricity must prepare for a more complex compliance landscape that impacts supply chain management, financial planning, and sustainability strategies.

Understanding the nuances of the EU CBAM’s implementation is essential for businesses to navigate forthcoming challenges and opportunities. The scheme functions alongside the EU Emissions Trading System (ETS), requiring importers to surrender certificates that reflect the embedded carbon emissions in their products, based on rigorous reporting requirements established during the transitional phase. This shift imposes new administrative demands with a concentration on accurate emissions data, verification processes, and substantial penalties for non-compliance.

Meanwhile, the progressive alignment between the EU and UK’s respective CBAM regimes indicates a trend toward harmonized carbon pricing standards that aim to simplify trade and limit duplicated reporting obligations. Importantly, the mechanism is not static but evolves to potentially include more sectors and refined methodologies, pushing companies to integrate carbon accounting into their core business operations.

Businesses should leverage the remaining months of the transitional phase to solidify data collection systems, engage suppliers in emissions transparency, and assess supply chain carbon footprints carefully. Proactive adaptation not only helps mitigate regulatory risks but also positions companies competitively in an increasingly carbon-conscious market environment.

Understanding the EU CBAM: From Reporting to Financial Obligations

The EU Carbon Border Adjustment Mechanism (CBAM) represents a pioneering approach to curbing carbon leakage while fostering global decarbonization by imposing carbon costs on imported goods comparable to those incurred by EU producers under the EU Emissions Trading System (ETS). Since its rollout in October 2023, the transitional phase has focused primarily on reporting requirements, enabling importers to familiarize themselves with emissions accounting and quarterly reporting duties without immediate financial penalties.

During this transitional phase, importers must submit detailed quarterly reports specifying embedded greenhouse gas emissions for covered products such as cement, iron and steel, aluminium, fertilisers, hydrogen, and electricity. This period has served as a pilot for both importers and EU authorities to refine methodologies, identify data gaps, and streamline the reporting process. The transparent flow of information has been critical to setting a solid foundation for the upcoming phase where financial obligations become enforceable.

Starting January 1, 2026, the CBAM shifts to its definitive phase where importers will be required to purchase and surrender carbon certificates to correspond with the verified emissions of their imported goods. These CBAM certificates will be priced in line with the weekly average price of EU ETS allowances. This creates a direct financial incentive to reduce embedded carbon emissions and promotes fair competition with domestic producers abiding by the EU’s carbon pricing framework.

Key stages importers must prepare for include:

• Accurate emissions calculation: Moving from default to actual verified emissions data requires enhanced carbon accounting capabilities and supplier cooperation.
• Quarterly and annual reporting: Importers must maintain robust data management systems capable of continuous reporting and certification surrender.
• Certificate purchasing and surrender procedures: Familiarity with the new CBAM registry platform for submitting reports and managing certificates will be vital.
• Compliance with anti-abuse measures: Stronger rules have been incorporated to prevent circumvention of CBAM obligations.

Failing to comply will attract significant penalties, including fines up to €100 per tonne of unreported emissions from 2026, a strong deterrent against non-adherence. Businesses will also face the risk of import bans into the EU single market and reputational harm.

This transition represents a critical turning point estimating to impact thousands of EU-connected companies, especially those involved in high-carbon-intensity product importation. For comprehensive guidance, platforms such as Time2Market’s CBAM blog and SGS’s update provide detailed insights into preparation requirements and compliance best practices.

Supply Chain Impact and Data Challenges Under the CBAM Framework

One of the most complex aspects of CBAM compliance lies within the supply chain impact and the challenge of gathering accurate emissions data from a wide network of suppliers, often situated in regions with less stringent environmental transparency. For importers, a robust approach to data acquisition, supplier engagement, and integration of sustainability metrics is vital.

The transition to verified rather than default emission values increases pressure on companies to ensure granular and precise carbon emission data is available for every product batch imported. This may require renegotiating contracts to secure supplier cooperation in emissions disclosure, as well as deploying advanced carbon accounting tools that synchronize procurement, operations, and sustainability functions effectively.

Key challenges and practical considerations include:

• Data reliability and verification: Independent verification of emissions data will be mandatory, posing logistical and cost challenges.
• Cross-functional collaboration: Alignment across departments such as procurement, IT, sustainability, and finance is necessary for holistic data management.
• Supply chain transparency: Engaging suppliers to track indirect emissions and to adopt cleaner practices is essential for risk mitigation.
• Handling multiple regulatory overlaps: Importers involved in both EU and UK markets must navigate dual CBAM requirements and timelines.

Practical case studies illustrate that companies proactive in embedding carbon metrics into procurement decisions gain not only compliance advantages but also competitive benefits in pricing and partnership opportunities. Additionally, carbon transparency can enhance corporate reputation among stakeholders demanding sustainable business practices.

More information about these supply chain dynamics and tools to tackle them can be found through CO2nsultancy’s importer insights and Sustainable Markets’ practical update.

The Interaction Between EU CBAM and the UK’s Carbon Border Mechanism

Stakeholders engaged in transnational trade between the European Union and the United Kingdom must carefully monitor the alignment efforts between EU CBAM and the UK’s separate but related carbon border system. Both mechanisms share objectives of preventing carbon leakage through carbon pricing on imports, yet differ in scope, timing, and administrative procedures.

The 19 May 2025 UK-EU Summit marked a landmark commitment toward linking the respective emissions trading systems underpinning each CBAM regime. Achieving such linkage would facilitate mutual exemption from CBAM charges for UK-EU trade flows, reducing the administrative burden and the risk of double carbon pricing.

Nevertheless, disparities in carbon prices—approximately €70 per tonne in the EU ETS versus £40 per tonne in the UK ETS—and staggered implementation timelines may present continued complexities. Harmonizing reporting standards, verifications, and default value methodologies remain priorities to promote seamless compliance for cross-border businesses.

• UK CBAM commencement: UK legislation will come into force January 1, 2027, initially covering aluminium, cement, fertilisers, hydrogen, iron, and steel imports, with potential future expansions.
• Registration thresholds: The UK’s threshold set at £50,000 of CBAM goods imported annually, reducing the reporting pool compared to the EU’s 50-tonne exemption.
• Compliance framework: UK importers will provide annual returns in 2027, transitioning to quarterly thereafter, validated by accredited emissions verifiers.
• Group treatment: Provisions allow related entities to register collectively, sharing compliance responsibilities, easing administration for large corporate groups.

These developments reveal the increasing sophistication of carbon pricing frameworks across Europe and underline the importance for businesses to stay informed and plan accordingly. Details on the UK’s CBAM and future policy directions can be reviewed on HSF Kramer’s analysis.

Strategic Implications of CBAM on Sustainability and Carbon Pricing

The introduction and mandatory enforcement of the EU CBAM symbolize a strategic pivot in global environmental regulation, embedding carbon pricing into international trade and corporate sustainability strategies. This mechanism aligns economic incentives with climate objectives, urging businesses to decarbonize their supply chains and improve carbon transparency.

From a sustainability perspective, CBAM acts as a lever encouraging companies to transition away from carbon-intensive suppliers or methods. Lowering embedded emissions not only reduces CBAM certificate costs but also enhances corporate environmental reputation. Moreover, as investors increasingly incorporate environmental, social, and governance (ESG) criteria into decision-making, demonstrable compliance with CBAM and proactive decarbonization can unlock access to capital and partnerships.

Key strategic actions businesses may consider include:

• Investment in carbon accounting technologies: Automated systems facilitate real-time emissions data collection and reporting accuracy, reducing risks and costs.
• Supplier engagement and supply chain shift: Prioritizing partnerships with suppliers employing cleaner technologies can optimize CBAM obligations.
• Contract renegotiations: Embedding carbon disclosure clauses and green procurement requirements.
• Scenario analysis and financial planning: Evaluating future CBAM liabilities under different carbon price forecasts helps budget effectively and guides strategic decisions.

Beyond immediate compliance, CBAM signals the growing importance of carbon pricing as a cornerstone of international environmental policy. The EU’s mechanism could serve as a model globally, reflected by analogous developments such as the US discussions on carbon cap mechanisms (Carbon Cap overview) and trade tensions surrounding green regulations (US-EU trade relations on green policies).

Engaging with CBAM proactively not only mitigates compliance risks but also capitalizes on the opportunity to foster sustainability leadership and innovate business models aligned with the low-carbon economy of the future.

Practical Guidance for Importers Preparing for End of CBAM Transitional Phase

Preparing to transition from the reporting-only phase to the financially binding phase of EU CBAM requires detailed practical actions from importers to ensure compliance and manage financial exposure effectively. Companies should evaluate their current position, identify gaps, and implement robust systems ahead of 2026.

Important considerations and preparatory steps include:

• Establishing clear data collection protocols: Identify sources of GHG emissions data from suppliers and internal processes, ensuring accurate and verifiable records.
• Supplier collaboration agreements: Secure commitments from foreign producers to provide required data and explore decarbonization pathways.
• Investing in compliance software and training: Deploy technology solutions capable of supporting mandatory quarterly reporting and certificate management while training teams on CBAM processes.
• Scenario planning and financial budgeting: Forecast CBAM-related costs under varying allowances prices and develop mitigation strategies.
• Engagement with customs and regulator bodies: Stay updated on reporting tools, CBAM registry access, and guidance documents released by the European Commission.

Firms that wait until the last moment risk costly penalties, disruption in supply chains, or unexpected financial burdens due to the steep fines imposed for non-compliance, including potential exposure reaching €100 per tonne of CO₂ equivalent emissions unaccounted for.

Resources covering detailed importer checklists and best practices can be found on Carbon Glance’s importers guide and EU official Access2Markets CBAM page.

What products are currently subject to the EU CBAM?

CBAM currently covers high carbon-intensive sectors including iron and steel, cement, aluminium, fertilisers, hydrogen, and electricity imports into the EU. This scope may expand in future years.

When do financial obligations under CBAM begin for importers?

Financial obligations begin on January 1, 2026. Importers will need to surrender CBAM certificates for embedded emissions starting with goods imported from that date, with the first deadline for certificate surrender on May 31, 2027.

How does the CBAM transitional phase help importers?

The transitional phase (Oct 2023 to Dec 2025) requires only emissions reporting without payment obligations, allowing importers to familiarize themselves with data collection, reporting procedures, and system nuances ahead of full implementation.

Are small importers exempt from CBAM reporting and payments?

Yes. The EU added a de minimis threshold whereby importers bringing under 50 tonnes of CBAM goods annually are exempt from reporting and payment duties, reducing burdens on smaller operators.

What penalties could companies face for failing to comply with CBAM?

Non-compliance can lead to penalties up to €100 per tonne of unreported emissions, potential exclusion from the EU market, and reputational damage. Persistent violators may also be publicly named and face stricter sanctions.