CBAM is here. What happens next?

If you import carbon-intensive goods into the EU and you haven’t yet got to grips with the Carbon Border Adjustment Mechanism, the time for procrastination is over. CBAM went live on 1 January 2026, and the EU means business.

After a two-year transitional phase focused on monitoring and reporting, the mechanism has now entered its definitive stage. This means that, for the first time, a carbon price is being applied to imports based on their embedded emissions.

Importers of goods including aluminium, cement, fertilisers, hydrogen, iron and steel must now be registered as authorised CBAM declarants, or risk having their goods held at the EU border.

The launch, by most accounts, was a success. More than 12,000 operators submitted applications for CBAM authorisation in the first week alone, and over 10,000 customs declarations with CBAM goods were validated automatically through integrated systems. The machinery is working, and the regulatory infrastructure is real.

For the moment, the financial sting is softened slightly. The sale of CBAM certificates has been postponed until February 2027, and declarants will acquire those certificates to cover emissions embedded in their 2026 imports.

Businesses importing fewer than 50 tonnes of CBAM goods per year are exempt. But make no mistake: the costs are accruing now and need to be factored into commercial planning and accounting even before the cash leaves the building.

One significant simplification has been the introduction of default emission values for countries that lack reliable data, making it easier for importers to calculate their obligations.

Estimated data is permissible in certain circumstances, but the catch remains the same as it was when we last wrote about CBAM: using default or estimated figures will cost more than using verified actuals. The direction of travel is firmly towards stricter, more granular reporting.

Across the Channel, the UK is preparing its own CBAM, confirmed for launch on 1 January 2027. The UK version will cover the same core sectors: aluminium, cement, fertilisers, hydrogen, iron and steel.

Unlike the EU, there will be no transitional reporting-only phase. From day one, the full carbon price will apply.

The first accounting period will cover the whole of 2027, with returns and payments due by the end of May 2028. Quarterly reporting follows from 2028 onwards.

There are some differences in design. The UK has set a minimum registration threshold of £50,000 of CBAM goods over a rolling twelve-month period, compared with the EU’s 50-tonne mass-based threshold.

Indirect emissions (broadly, those from the electricity used in production) will not be included in UK CBAM calculations until 2029 at the earliest. And notably, the UK scheme does not cover electricity imports, whereas the EU’s does.

But the bigger picture is one of increasing alignment. At the UK-EU Summit in May 2025, both sides publicly committed to working towards linking their respective Emissions Trading Systems.

If achieved, this would pave the way for mutual exemptions from CBAM charges on trade between the UK and the EU, which would be a significant win for businesses operating in both markets. In November 2025, the EU Council formally authorised the European Commission to begin negotiations with the UK on exactly this point.

The summit also highlighted joint efforts to harmonise reporting and verification methodologies, develop robust default values, and streamline the authorisation process for importers.

The political will on both sides is clear, even if the practical and legal details of bringing two carbon pricing systems into alignment will take time to work through. One challenge is the current gap between EU and UK carbon prices: EU ETS allowances have been trading at around €90 per tonne, while the UK equivalent sits at around £50.

Closer alignment could mean upward pressure on UK carbon costs, with implications for sectors like construction and agriculture.

And that brings us to the question that should be occupying every boardroom with exposure to CBAM-covered goods: where is the price of carbon heading?

The short answer is up. Analysts expect EU carbon prices to average around €93 per tonne in 2026, crossing into triple digits by 2027 and potentially reaching €126 per tonne by the end of the decade.

The drivers are structural: the supply of allowances is shrinking as the EU tightens its emissions cap, free allocations for CBAM-covered sectors are being phased out between now and 2034, and demand for allowances remains robust. Hedge funds and institutional investors are increasingly betting on rising carbon prices, adding further momentum.

At the same time, the scope of CBAM is set to expand significantly. In December 2025, the European Commission published a proposal to extend CBAM to downstream products, specifically steel- and aluminium-intensive manufactured goods.

The proposal covers around 180 additional product categories, including car parts, domestic appliances such as refrigerators and washing machines, construction products, power transformers, cables, farming machinery, and a wide range of industrial equipment.

If adopted, this extension would take effect from 2028 and bring an estimated 7,500 new importers into the compliance framework. Further extensions to downstream products in other CBAM sectors, including cement, fertilisers and hydrogen, are under consideration for future legislative revisions.

The Commission has also introduced stronger anti-circumvention measures, targeting practices such as minor transformations of goods outside the EU to avoid CBAM obligations, and the artificial restructuring of supply chains to secure lower default emission values. The message is clear: the authorities are watching, and the net is getting wider.

For businesses, the practical implications are significant. Those importing into the EU need to have their CBAM authorisation in place, their emissions data verified, and their supply chain documentation ready to withstand scrutiny.

Those exporting to the EU need to be able to provide their customers with accurate, timely emissions data, or risk being passed over in favour of competitors who can. And those who think they are currently outside the scope of CBAM should be asking themselves how long that will last, given the planned expansion to downstream goods.

The fundamentals have not changed since we first wrote about this subject. Only by attaching a meaningful and rising price to the production of greenhouse gases will businesses be incentivised to find cleaner ways of making their products.

The velvet glove of the transitional phase has been replaced by something altogether more purposeful. The penalties for non-compliance are real, the reputational risks are tangible, and the commercial advantages for those who get ahead of the curve are substantial.

Professional advice remains essential. The regulatory landscape is evolving rapidly, the interaction between the EU and UK schemes adds complexity, and the stakes are only going to get higher.

Those businesses that invest the time and effort now to understand their obligations, clean up their data, and build resilient supply chains will be the ones left standing when the dust settles.

The clock is no longer ticking. It has struck.