The EU Carbon Border Adjustment Mechanism (CBAM): What North American Exporters to Europe Need to Know

The EU Carbon Border Adjustment Mechanism (CBAM) is a tariff-like duty imposed on certain carbon-intensive products imported into the European Union. Effective from January 1, 2026 (following a transitional period from 2023-2025), CBAM applies to imports of cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen based on embedded carbon content. For North American exporters serving European customers, CBAM represents a new cost dimension that extends beyond traditional tariffs. It is a carbon-based import duty designed to prevent carbon leakage, the relocation of production to countries with weaker climate policies, while leveling the playing field between high-carbon imports and lower-carbon EU domestic production. North American exporters must understand how CBAM calculates duties, what their compliance obligations are, and how to prepare their businesses for the definitive regime beginning in 2026. CBAM interacts with existing trade remedies, including US Section 232 tariffs on steel and aluminum, creating a complex dual-duty environment. For businesses exporting affected products, preparing now for CBAM compliance is essential to maintaining market access and competitiveness in the EU.

What Is CBAM and Why Did the EU Create It?

The Carbon Border Adjustment Mechanism is the EU's response to a fundamental challenge in climate policy: if the EU imposes strict carbon pricing within its borders while allowing low-carbon imports to enter duty-free, EU manufacturers lose competitiveness. High-carbon goods from countries without carbon pricing can undercut EU producers, incentivizing companies to relocate production abroad, carbon leakage. CBAM addresses this by imposing a carbon-based tariff on imports, ensuring that imported products face similar carbon costs as EU-produced goods.

CBAM is not a traditional tariff in the classical sense. Instead of a fixed percentage duty, CBAM calculates the cost based on the embedded carbon in imported products and the difference between the carbon price in the product's country of origin and the EU's carbon price (determined by the EU Emissions Trading System, or ETS). If a product is imported from a country with no carbon pricing, the duty is higher. If a product is imported from a country with carbon pricing equivalent to or higher than the EU's, the duty is lower or eliminated.

This mechanism levels the playing field by ensuring that regardless of where a product is produced, similar carbon costs are imposed. For North American exporters, this means understanding the carbon intensity of your products, calculating embedded carbon, and reporting accurately to EU customs authorities.

CBAM Timeline: Transitional and Definitive Regimes

CBAM operates in two phases: Transitional Phase (October 1, 2023 , December 31, 2025): During this period, importers must report the carbon content of their imports and any carbon costs paid in the country of origin, but no duties are owed. This is a reporting-only phase designed to allow businesses to adjust and gather compliance data. Definitive Regime (January 1, 2026 onwards): Starting in 2026, importers must obtain CBAM certificates for their imports. These certificates are purchased based on the calculated CBAM duty, similar to how the EU ETS operates. This is the full enforcement phase.

For North American exporters, the transitional period is critical. It is your opportunity to audit your supply chain, understand your carbon footprint, ensure accurate emissions data, and prepare your business for the definitive regime. Waiting until 2026 to begin preparations will result in compliance failures and cost overruns.

Which Products Are Covered by CBAM?

CBAM currently applies to six product categories: Cement and clinker: Raw and processed cement, including clinker used in cement production. Iron and Steel: All iron and steel products, including flat steel, tubes, and finished goods containing primary iron and steel. Aluminum: Primary aluminum and semi-finished aluminum products. Fertilizers: Specific fertilizer products (urea, ammonia, ammonium nitrate). Electricity: Electricity consumed in the production of covered products. Hydrogen: Hydrogen produced and used in covered production processes.

The scope of CBAM may expand to include additional sectors in future phases, potentially including organic chemicals, polymers, and other carbon-intensive products. North American exporters of these primary products must prepare immediately. Exporters of downstream products (e.g., automobiles containing steel, machinery with aluminum components) should monitor their supply chains, as CBAM may indirectly affect their competitiveness depending on how embedded carbon is calculated through the supply chain.

How CBAM Interacts with Existing US Tariffs (Section 232)

North American exporters of steel and aluminum face a unique complication: the US Section 232 tariffs. The US imposed 25% tariffs on steel imports and 10% on aluminum imports under Section 232 authority (national security). These are applied regardless of country of origin. For Canadian and Mexican exporters, USMCA provides exemptions. For EU exporters, these US tariffs apply directly to exports into the North American market. Now, with CBAM in the EU, exporters of North American steel and aluminum to Europe face tariffs from both sides: US Section 232 tariffs if they import inputs from the US, and CBAM duties if they export to the EU. This creates a cost squeeze that requires careful supply chain optimization. Peacock Tariff Consulting helps North American businesses affected by Section 232 understand how to minimize exposure, including nearshoring of input materials, strategic positioning of production facilities, and tariff engineering within CBAM compliance requirements.

CBAM Reporting Requirements and CBAM Certificates

CBAM compliance involves two primary obligations: During the Transitional Phase (through 2025): Quarterly reporting of carbon content. Importers must report the embedded carbon in their imports and any carbon costs paid in the country of origin. This data is collected by customs authorities to establish a compliance record and inform the definitive regime. During the Definitive Regime (2026 onwards): CBAM Certificate procurement. Starting in 2026, importers must purchase CBAM certificates based on calculated duties. These certificates function similarly to EU ETS allowances. The number of certificates required equals the CBAM duty owed. Certificates are surrendered to customs authorities when the import declaration is made.

For North American exporters, this means your EU customers must report accurate carbon data and obtain certificates. Exporters are responsible for providing precise emissions data and carbon intensity information to their EU importers. Inaccurate or missing data can result in higher calculated duties and customs penalties.

How North American Exporters Can Prepare for CBAM

Carbon Accounting: Conduct a comprehensive carbon audit of your products. Calculate Scope 1 (direct) and Scope 2 (indirect energy) emissions for each product line. For integrated facilities, use allocation methods to assign emissions to specific products. Data Transparency: Ensure your supply chain can provide verified emissions data. If your inputs come from third-party suppliers, work with them to obtain accurate carbon intensity figures. Supply Chain Adjustments: Identify opportunities to reduce embedded carbon. This might include sourcing renewable energy, optimizing production processes, or shifting to lower-carbon input materials. Emissions Accounting Standards: Familiarize yourself with the methodology the EU uses to calculate embedded carbon. The CBAM regulation specifies how carbon costs are calculated and reported. Compliance Documentation: Begin maintaining detailed records of carbon costs, supplier emissions data, and production processes. These records are critical for both the transitional reporting phase and the definitive regime.

CBAM and US Carbon Pricing Policy

As of 2026, the United States does not have comprehensive carbon pricing. There is no federal carbon tax or cap-and-trade system equivalent to the EU ETS. This is significant because CBAM calculates duties partly based on carbon costs paid in the country of origin. For North American exporters, the absence of US carbon pricing means your CBAM duty will be calculated as if no carbon cost has been paid. In contrast, exporters from countries with carbon pricing (Canada has provincial carbon pricing, some US states have regional trading systems) may receive credit toward their CBAM duty. This creates a competitive disadvantage for North American exporters in EU markets. Watch for potential developments in US climate policy, such as a potential federal carbon tax, which could reduce CBAM duties on North American goods.

Practical Compliance Steps for Affected Businesses

Audit Your Product Portfolio: Identify which products fall under CBAM scope. Even if your primary products are not directly covered, calculate the carbon intensity of your inputs. Engage Your EU Customers: Notify them of your capacity to provide accurate emissions data. Establish protocols for sharing carbon intensity information and updates. Implement Carbon Tracking: Deploy or upgrade internal systems to track and calculate embedded carbon. Consider third-party certifications (ISO 14064, Product Carbon Footprint standards) to enhance credibility. Monitor CBAM Regulatory Updates: The EU continues to refine CBAM regulations. Subscribe to EU trade publications and engage with customs brokers or trade consultants to stay informed. Plan for Cost Increases: Model potential CBAM duties on your export volumes and adjust pricing or supply chain strategies accordingly. Review Supply Chain: Evaluate whether sourcing or production relocations could reduce embedded carbon and CBAM exposure.

How Peacock Tariff Consulting Helps with CBAM Compliance

Peacock Tariff Consulting brings over 20 years of experience in customs compliance, tariff strategy, and cross-border operations. For North American businesses navigating CBAM, we provide expert guidance including: Carbon Footprint Assessment: We help you calculate embedded carbon and understand your CBAM exposure. Supply Chain Analysis: We identify opportunities to reduce embedded carbon and optimize your supply chain for CBAM compliance. Regulatory Monitoring: We track CBAM updates and inform you of changes affecting your business. Dual-Duty Strategy: For businesses affected by both Section 232 and CBAM tariffs, we develop integrated strategies to minimize overall duty exposure. Compliance Documentation: We help establish systems to maintain the detailed records required for CBAM reporting and certification.

Contact Us

If you're a North American exporter of steel, aluminum, cement, fertilizers, electricity, or hydrogen serving EU markets, CBAM compliance is not optional. The definitive regime begins January 1, 2026. Contact Peacock Tariff Consulting today to assess your CBAM exposure and develop a comprehensive compliance strategy.