CBAM — EU Carbon Border Adjustment Mechanism

Definition

CBAM (“Carbon Border Adjustment Mechanism”) is the European Union’s carbon-pricing border tariff on imports of carbon-intensive products from non-EU jurisdictions. It is established by Regulation (EU) 2023/956 and operationalised for the transitional period by Implementing Regulation (EU) 2023/1773.

The policy intent: equalise the carbon-cost burden between EU producers (who already pay the EU Emissions Trading System (ETS) carbon price) and non-EU exporters (who often face no equivalent carbon cost). Without CBAM, EU climate policy would create an incentive for “carbon leakage” — production migration to lower-carbon-cost jurisdictions.

Sectors in scope (initial 6)

CBAM applies to imports into the EU of the following six product categories (specific HSN / CN codes per Annex I of the Regulation):

Iron and steel — pig iron, ferro-alloys, semi-finished products, certain downstream products (HSN 7201-7229 + specified downstream)
Aluminium — unwrought aluminium, certain downstream products (HSN 7601-7616 + specified downstream)
Cement — cement clinker, white Portland cement, other Portland cement, aluminous cement, other hydraulic cements
Fertilizers — nitric acid, ammonia, urea, other mineral fertilizers (specified HSN codes)
Hydrogen — hydrogen produced through processes other than electrolysis powered by renewable electricity
Electricity — electrical energy imports

The European Commission has signalled future scope expansion (potentially to chemicals, polymers, and additional manufactured goods) but the current regulation covers the six listed categories.

Phasing — transitional vs definitive

Transitional period: 1 October 2023 to 31 December 2025

EU importers must file quarterly CBAM reports to the CBAM Transitional Registry, declaring the embedded emissions of imported in-scope products.
No financial obligation — no CBAM certificates need to be purchased.
Indian exporters of in-scope products must provide embedded-emissions data to their EU importers (typically structured per the Implementing Regulation’s methodology).
Default values for embedded emissions are published by the European Commission for cases where actual emissions data is unavailable.

Definitive regime: from 1 January 2026

EU importers must purchase CBAM certificates corresponding to the embedded emissions of imported in-scope products.
CBAM certificate price is benchmarked to the weekly average EU ETS auction price.
The certificate cost is reduced by any carbon cost actually paid in the country of origin (avoiding double-pricing).
Free allocation of EU ETS allowances to EU domestic producers is phased out gradually between 2026 and 2034 — as free allocation reduces, the effective CBAM cost on imports rises in parallel.

Implications for Indian exporters

Indian exporters of in-scope products (notably iron + steel, aluminium, cement, fertilizers) to the EU face two immediate workstreams:

Embedded-emissions calculation — per the Implementing Regulation methodology, at the product-installation level, with verification by an accredited verifier from 2026 onwards. The methodology is more granular than enterprise-level BRSR Scope 1 + 2 reporting and requires per-product-batch / per-installation tracking.
EU importer coordination — Indian exporters do not file CBAM declarations directly with the EU; their EU importer does. But the importer needs accurate embedded-emissions data from the Indian exporter, which means Indian exporters must build the data infrastructure to provide compliant data quarterly during the transitional period and on every shipment from 2026 onwards.

For the sectoral mechanics of CBAM exposure within BRSR disclosures, see the BRSR for Cement and BRSR for Manufacturing industry guides — both cover the BRSR / CBAM data-infrastructure overlap.

Relationship to BRSR

CBAM and BRSR are independent regimes:

BRSR is SEBI-mandated enterprise-level ESG disclosure for the Top 1,000 Indian listed entities (per market capitalisation).
CBAM is an EU-importer-side carbon-pricing regime applied to specific imported product categories regardless of who the exporter is.

But they share underlying data — the GHG inventory infrastructure that supports BRSR Scope 1 + 2 disclosure is also the foundation for product-level embedded-emissions calculation under CBAM, with additional disaggregation required for CBAM (per-installation, per-product). Indian listed exporters in CBAM-scoped sectors typically build a single carbon-accounting infrastructure that serves both regimes, with separate output formats for each.

For the underlying GHG accounting framework, see the GHG Protocol glossary entry and the Scope 1 emissions glossary entry.

Verification + assurance

For CBAM declarations from 2026 onwards, embedded-emissions data must be verified by an accredited verifier. The verification standard typically aligns with ISO 14064-3 (greenhouse gas verification) and, for Indian exporters seeking concurrent BRSR assurance, ISAE 3410 or its Indian analogue SAE 3410 for the same GHG inventory data.

Batchwise coordinates EU CBAM Declaration preparation and verification through partner CA firms — the embedded-emissions calculation, the quarterly transitional reports, the definitive-regime CBAM certificate workflow from 2026 onwards, and any ISAE 3410 verification engagement layered on top.

Common questions

Is CBAM a tariff or a tax? Strictly, CBAM is a “carbon adjustment” — the cost is determined by the EU ETS carbon price applied to the embedded emissions in the imported product, with credit for any carbon cost paid in the country of origin. Functionally, for exporters facing no domestic carbon price, it operates as an additional import cost.

Does CBAM apply to services? No. CBAM applies only to specified physical goods (the six product categories above). Services exports are outside CBAM scope.

Does India have an equivalent regime? No. India has no enterprise-wide carbon-pricing regime. The Carbon Credit Trading Scheme (CCTS) notified by the Ministry of Power in 2023 is a domestic compliance + offset market for specific energy-intensive sectors, but it does not function as an economy-wide carbon tax. The effect: Indian exporters of CBAM-scoped goods will face full CBAM cost without offsetting domestic carbon-cost credit, unless the EU recognises Indian sector-specific compliance costs as equivalent (a contested issue under EU-India trade discussions).

When will scope expand beyond the initial 6? The European Commission is required to review CBAM scope expansion by 2026 and is widely expected to add chemicals, polymers, and additional downstream products in subsequent phases. Indian exporters in adjacent categories should build the data infrastructure preemptively.