Finally, implementation details for CBAM cost calculations are out. From Jan 1, 2026, carbon costs will be incurred on EU imports of goods under CBAM. The cost impact will depend primarily on the difference between the specific emissions and the adjustment for free allocations, as well as the price of CBAM certificates.
(this blog is regularly updated – last update on 17/12/2025)
CBAM cost ramp-up from 2026
From the new year onwards, carbon cost impact will kick-in for CO2-intensive goods imported under the EU’s the Carbon Border Adjustment Mechanism (CBAM). With only a few weeks to go important details for calculating these costs are still open.
Companies importing CBAM goods after January 1, 2026 will need CBAM certificates for the embedded’ emissions. The start date for the purchase of such certificates was moved to February 2027 with the latest CBAM amendments.
This would have resulted in additional costs of EUR 12 billion for EU imports in 2024 – in a fully phased-in CBAM system. CBAM levies will be gradually increased via a CBAM factor until 2034. Only then will the full CBAM costs take effect.
This ramp-up is taking place in line with the phase-out of free EU emission allowances (EUAs) in the Emissions Trading System (ETS). In the ETS, which has been in existence since 2005, a large proportion of EUAs are still allocated for free.
The ETS reform aims to reduce the free EUA allocations each year. To this end, a CBAM factor will be added to their calculation.
In 2026, it will be 97.5%. The factor will then be cut each year: from 95% in 2027 to 51.5% in 2030. From 2034, it will no longer apply, meaning that no more EUAs will be allocated free of charge. The CBAM levies will then take full effect.
CBAM cost factors
On December 17, the EU Commission provisionally published a set of acts to detail CBAM implementation from 2026 onward, including the calculation of (i) specific emissions, (ii) free allocation adjustments, and (iv) price of CBAM certificates. An implementing act for carbon prices paid is to follow in 2026.
Specific emissions values
The calculation of the required CBAM certificates is based on the value for specific emissions embedded in CBAM goods. These emission values must be determined by the producers of the goods using the CBAM monitoring methods and be verified by accredited CBAM verifiers.
If verified emission data is not available, default values are to be used. These will be set on a country-specific basis. Depending on the country of origin and its production routes, this can result in significantly higher charges.
In addition, a proportional surcharge will be applied to incentivize the use of actual data. For most goods this will rise from 10% in 2026 to 30% in 2028.
Both the country-specific default values and surcharges imply high costs for many countries – already causing turmoil among importing companies.
Free allocation adjustments
Until 2034, importers benefit from free emissions in line with the free EUA allocations in the ETS. The gradual decrease of this free allocation adjustment is resulting from the declining CBAM factor multiplied with a benchmark value
The benchmarks represent reference values for emissions per production unit. In the ETS, this value is based on the emissions intensity of the 10% most efficient installation for the ETS-covered production processes. For CBAM these are to be translated into product-specific benchmarks.
Two types of benchmarks were published based on the ETS benchmark values:
- Actual data: Addition of the benchmark of the relevant production process and the mass-weighted averages for all precursors based on actual activity data;
- Default values: Set at the CN code level and differentiated between production characteristics (e.g. routes and grades for steel).
Also a cross-sectoral correction factor is to be taken into account. This will be set based on the national implementation measures for the next ETS period to align the preliminary free allocations with the emissions cap.
Carbon prices paid
In addition to these free allocation adjustments, CO2 prices already paid in the country of origin can be deducted. An upcoming implementing regulation in 2026 will define which types of carbon prices are to be accounted for.
Likely candidates are ETS or direct carbon taxes in CBAM sectors. The CO2 IQ Carbon Pricing Radar counts 18 non-EU countries with such instruments being implemented or scheduled.
Accounting for free allocations and other compensations, only the effective prices paid will be deducted. When default values are used, default carbon prices are to be applied. These prices are to be published through the CBAM registry.
Price of CBAM certificates
CO2 prices also drive the costs for the CBAM certificates. They are linked to ETS prices.
From February 2027, they will be calculated on a weekly basis using the closing prices of the EUA in the ETS auctions of the previous week. In the course of the year 2025, they have varied between 60,77 and 82,60 EUR/tCO2e.
Derogating from this rule, in 2026 these prices are set retrospectively based on average price in the quarter of the imports – as in the UK CBAM. In 2025, they would have been at 72,14 EUR/tCO2 in Q3 up from 68,75 EUR/tCO2e in Q2.
These price fluctuations are highly relevant in the import business of CBAM goods. Usually, there are several months between the purchase decision and the release of the goods for free circulation in the EU. Only then CBAM levies apply.
Managing CBAM cost risks
As a result of these uncertain cost factors, CBAM costs are difficult to predict at the moment. Large costs ranges are possible depending on the difference between the emissions value and the free allocation adjustment and the future price for CBAM certificates.
Overall, the inherently uncertain nature of some of these costs factors result in high costs risks for 2026. Although the final bill is only to be settled in 2027, companies need to run their cost calculations now for financial planning and controlling.
To better understand and manage costs risks, EU companies should:
- Compile activity and emissions data of producers and check their CBAM conformity to increase the likelihood to get verified data;
- Set-up benchmark determinations based on actual and default values differentiating between production route and accounting for precursors
- Assess deductability of carbon prices already paid in third countries and their potential price pathways
- Analyze carbon price impacts and identify solutions to hedge price fluctuations of CBAM certificates – similar to hedging exchange rate fluctuations
With all these uncertainties, new measures to share costs risks between suppliers, importers and final buyers may be key to enable deals in 2026. And depending on the cost implications, strategic and operational adjustments to purchasing and supply chain management may become necessary.
Sources and further information:
- European Commission: Carbon Border Adjustment Mechanism
Photo by Pim de Boer on Unsplash
