CBAM costs start kicking in. 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 embedded emissions and the free allocation adjustment, as well as the price of CBAM certificates. With decreasing CBAM factors, costs will rise.
(this blog is regularly updated – last update on 17/8/2026)
CBAM cost ramp-up from 2026
From 2026 onwards, carbon cost impact will kick-in for CO2-intensive goods imported under the EU’s the Carbon Border Adjustment Mechanism (CBAM). Cost factors are evolving are still uncertain.
Companies importing CBAM goods after January 1, 2026 will will need to purchase 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.
As costs are starting to bite, the calls for ETS-reform to slow-down the phase out of free EUA and lower pressure on ETS-prices by expanding the supply of EUA have been growing louder.
CBAM cost factors
On January 1, 2026 the definitive CBAM rules entered into force set. They are set in implementing regulations (IR) – 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 embedded emissions (SEE)
The calculation of the required CBAM certificates is based on the value for specific emissions embedded (SEE) 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. They are published in IR 2025/2621 amended by IR 2026/2621. Depending on the country of origin and its production routes, this can result in significantly higher charges.
In addition, a proportional mark-up 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 mark-ups imply high costs for many countries – already causing turmoil among importing companies.
Specific embedded free allocation (SEFA)
Until 2034, importers benefit from free emissions in line with the free EUA allocations in the ETS. The gradual decrease of this SEFA 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.
For CBAM these are to be translated into product-specific benchmarks in IR 2025/2620 with two types of benchmarks:
- 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).
To reduce the free allocations each year, 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.
The latest ETS-reform proposals aim to slow the phase-out and to keep free EUAs for longer. To this end, the CBAM factor is to be increased to extend free allocation beyond 2034 with a factor of 15% remaining in place until 2038.
Also a cross-sectoral correction factor (CSCF) is to be taken into account. The CCSF is based on the national implementation measures for the next ETS period to align the preliminary free allocations with the emissions cap. It has been set to be 100% for 2026-30 by Implementing Decision 2026/1862.
Carbon prices paid
In addition to these free allocation adjustments, CO2 prices already paid in the country of origin can be deducted. An upcoming IR defines the rules for these reductions.
ETS or direct carbon taxes in CBAM sectors will be considered. 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 first quarter of 2026 they have fluctuated between 60 and 90 EUR/tCO2eq.
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. For Q1 and Q2 of 2026 they have been set to be 75.36 and 75.28 EUR/tCO2eq.
Carbon 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. The effect of a higher CBAM factor has a smaller cost impact.
Overall, the currently uncertain nature of emission values 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: Guidance Note for Operators No 1
- EU: Regulation Establishing a CBAM (2023/956)
Photo by Pim de Boer on Unsplash
