From 1 January 2026, the EU's Carbon Border Adjustment Mechanism (CBAM) moved from its 2023–2025 transitional reporting-only phase into the definitive regime, in which importers of iron, steel, aluminium, cement, fertilisers, electricity and hydrogen must purchase and surrender CBAM certificates priced against EU ETS auctions [S5][S1]. CBAM is a border carbon tool that complements, rather than replaces, the EU ETS, and its purpose is to put a carbon price on imported goods equivalent to what EU producers already pay under ETS [S5].
Steel and aluminium together account for about 12% of global CO2 emissions, which is why the European Commission placed them in the initial CBAM scope [S1]. The product coverage is broad: for aluminium, the regime reaches unwrought metal, powders, flakes, bars, rods, profiles, wire, plates, sheets, strip, foil, tubes and pipes [S1]. For iron and steel, the list runs from agglomerated iron ore concentrates, pig iron, spiegeleisen and ferro-alloys, through semi-finished and flat-rolled products, to bars, rods and structural shapes, in both alloy and non-alloy grades [S1]. Excluded in this first phase are heavily processed goods, so an automaker buying a finished car body is not in scope, while fasteners, nuts, bolts and steel sheet used in that body are [S1].
How the certificate cost is built: emissions intensity × EU ETS price
CBAM liability is a product of two variables, embedded emissions per tonne of metal and the prevailing CBAM certificate price, which itself tracks the volatile EU ETS auction price [S3]. A high-emissions-intensity hot-rolled coil (HRC) producer under a high-EUR EUA scenario can face CBAM costs up to 10 times those of a low-emissions-intensity producer under a low-price scenario, according to Fastmarkets analysis [S3].
For steel specifically, Global Efficiency Intelligence modelling under a medium carbon price scenario projects EU CBAM import charges of $72 and $83 per tonne in 2030, and a higher $210 per tonne figure appears in the same study under more aggressive carbon-price assumptions [S2]. The U.S. Chamber's projections apply a projected CBAM charge of $120 per tonne of embedded emissions to country-level trade flows, which is the basis for its cross-country comparison [S4]. These numbers are model outputs, not tariff lines; the actual charge is paid in CBAM certificates denominated in EUR per tonne of CO2, then multiplied by verified embedded emissions [S3][S5].
Where the bill lands: 75% on iron and steel, 7% on aluminium
Under static trade flows, annual CBAM certificate costs across the covered sectors could reach €9bn by 2026 and €22bn by 2035, an upper-bound figure that assumes no trade-flow re-routing and no policy circumvention [S3].
Fastmarkets estimates that around 70% of CBAM-covered imports could face an effective levy above 10% of import value by 2035, while roughly 15% could exceed 50% [S3]. The risk for specifiers is straightforward: a procurement line item priced in March 2025 may carry a carbon levy that, in worst-case product categories, exceeds the mill price itself, which is why sourcing decisions for aluminium alloy feedstock and construction machinery and equipment frames now have to model carbon intensity alongside grade and lead time.
Country exposure: EU-market dependency matters as much as carbon intensity
The U.S. Chamber of Commerce introduced a "relative CBAM cost burden" metric, defined as total annual CBAM costs divided by total annual value of global exports in CBAM-covered products, to capture the fact that exposure depends on both carbon intensity and how heavily a country sells into the EU [S4].
By that measure, the U.S. is structurally light-touch: it sends only about 7% of its global CBAM-covered exports to the EU, and under 7% of its global iron and steel exports go to the EU, with most U.S. steel heading to Canada and Mexico [S4]. India, by contrast, exports 25% of its iron & steel and aluminium to the EU, which lifts its relative CBAM burden sharply [S4]. Russia, China and India together pay the largest share of total CBAM dues in the Chamber's $120/tCO2 scenario, while Canada benefits from a low-carbon smelting grid in its aluminium exports and is widely cited as a near-term CBAM winner [S4][S7].
Selection criteria for low-CBAM-exposure sourcing
For an engineer or buyer building a sourcing matrix for CBAM-exposed metals, four criteria are worth scoring supplier by supplier: (1) verified embedded emissions per tonne, ideally third-party verified under the EU's CBAM verification regime, not a mill self-declaration [S5]; (2) share of production powered by low-carbon electricity, since aluminium smelter intensity is dominated by electricity source [S7]; (3) EU-market dependency of the producing country, since a country that sends 25% of its steel to the EU is more likely to pass through full CBAM cost than a country that sends 7% [S4]; and (4) exposure to the EU ETS carbon price, which is the certificate-pricing input and which has moved in a wide range over 2024–2025 [S3].
The point of the matrix is to separate two effects that the headline "€9bn by 2026" number conflates: a real carbon-intensity gap (BF-BOF vs EAF for steel, coal-power vs hydro-power for aluminium) and a trade-flow rerouting effect that can blunt the levy before it ever reaches the invoice [S2][S4]. A practical spec note: when a fabricator is buying lamps and light fittings or lighting equipment and electric lamps whose housings and heatsinks are aluminium, the CBAM surcharge on the metal input is now a quotable line item, not an abstraction.
Limitations and failure modes of the current CBAM design
CBAM's coverage deliberately stops at "relatively simple" goods, which is why fasteners, sheet and extrusions are in, but car bodies, doors and assembled machinery are out in this phase [S1]. The Carbon Trust has flagged that the direct cost falls on the importer, but the knock-on effects on exporters of iron, steel and aluminium are likely to be significant, with second-order price pressure on EU downstream sectors [S6].
Kearney's September 2025 note goes further and warns that importers who fail to prepare face higher cumulative costs once the definitive regime starts charging certificates, not just reporting them [S8]. And TATA Steel Nederland's service-centre communication is blunt: from the definitive date, importers of steel into the EU will need to purchase CBAM certificates, which in practice means compensating for the manufacturing-related emissions that were only reported during 2023–2025 [S9].
Standards, verification and what an importer actually has to file
The legal anchor is Regulation (EU) 2023/956 establishing the CBAM, administered by DG TAXUD, with the CBAM Registry acting as the system of record for declarants and the price of CBAM certificates published in EUR per tonne of CO2 and linked to EU ETS auction prices [S5]. Verification of embedded emissions is handled under a separate verification regime referenced on the Commission's CBAM page, and importers must use accredited verifiers rather than self-declared values once the definitive phase is in force [S5].
For an engineering buyer, the practical shortlist is: (a) demand the supplier's CBAM-relevant CN code and emissions data, broken out between direct and indirect emissions; (b) confirm whether the data is EU-verified, third-party verified, or mill self-declared, because the certificate surrender cost can swing by a factor of ten between high- and low-intensity producers under the same EUA price [S3][S5]; (c) check the supplier's electricity mix disclosure if aluminium, since indirect emissions are dominant in primary smelting [S7]; and (d) treat CBAM as a contractual pass-through clause, not a discretionary rebate, because the importer of record is the party that surrenders certificates to the EU Registry [S5][S9]. The 2030 model numbers ($72–$83/t steel under a medium carbon-price scenario, $210/t under a higher one) are useful as scenario brackets, not as quote inputs [S2].
Trackable signals over the next reporting cycle: the EU Commission's quarterly publication of CBAM certificate prices, the first verified emissions reports filed under the definitive regime, and any Council/European Parliament revision of the list of covered CN codes, since product-scope expansion is the single biggest upside risk to a sourcing plan built on the current list [S5][S1].
For related coverage, see Peroxide-Cured EPDM for Chloraminated Potable Water: Specs, Testing, and Limits.