What is CBAM

Definition

CBAM (Carbon Border Adjustment Mechanism) is the European Union instrument that puts a carbon price on goods imported into the EU, mirroring the cost that domestic producers already bear under the EU Emissions Trading System (EU ETS). Its purpose is to prevent carbon leakage, the situation in which EU manufacturers lose competitiveness to foreign suppliers that face no comparable carbon cost, and production (along with its emissions) simply moves abroad.

How CBAM works in practice

CBAM applies to a defined list of carbon-intensive products: iron and steel, aluminium, cement, fertilisers, electricity and hydrogen. When an EU importer brings any of these goods into the customs territory, it must surrender CBAM certificates corresponding to the embedded emissions of the shipment. The price of each certificate is linked to the weekly average auction price of EU ETS allowances (for emissions embedded in 2026 imports, the quarterly average of the quarter of importation), so the importer effectively pays the same carbon price that an EU factory would.

A transitional reporting phase began on 1 October 2023. During this phase, importers had to report the embedded emissions of their shipments but did not yet need to purchase certificates. The definitive phase started on 1 January 2026. The obligation to actually buy and surrender certificates was pushed to February 2027, covering imports made during 2026. Importers whose imports of iron and steel, aluminium, cement and fertilisers do not exceed 50 tonnes of net mass per year are exempt from the mechanism; the exemption does not apply to electricity and hydrogen.

Concrete example

Consider a steel mill outside the EU exporting hot-rolled coil to a buyer in Germany. The importer calculates the tonnes of CO₂ embedded in the shipment using the mill’s actual emissions data (or, where actual data is unavailable, default reference values published by the European Commission). Suppose the shipment carries 500 tonnes of embedded CO₂ and the CBAM certificate price that week is EUR 70. The importer would need to surrender certificates worth EUR 35,000. However, if the steel mill already paid a carbon price in its home country (through a carbon tax or an emissions trading system), the importer can deduct that amount. If the origin country’s carbon price was EUR 20 per tonne, the deduction would be EUR 10,000, and the net CBAM cost drops to EUR 25,000.

CBAM and Brazil

Brazil’s regulated carbon market, the SBCE (Sistema Brasileiro de Comércio de Emissões), was established by Law 15.042/2024. The system covers facilities that emit 10,000 or more tonnes of CO₂-equivalent per year in its first compliance cycle and is structured as a cap-and-trade programme governed by the Interministerial Committee on Climate Change (CIM), a managing body (órgão gestor) and a permanent technical advisory committee.

The connection between SBCE and CBAM is direct. Once the Brazilian carbon market is fully operational and generates a verifiable carbon price, Brazilian exporters of CBAM-covered goods (notably steel and aluminium) can use that domestic carbon cost as a deduction when their EU importers calculate the CBAM liability. Without a functioning domestic carbon price, the full CBAM certificate cost falls on the European buyer, which in turn pressures the commercial terms offered to the Brazilian exporter.

This makes the timeline and credibility of SBCE implementation a practical trade concern, not just an environmental policy question. Brazilian steel and aluminium producers are among the largest suppliers to the European market, and the difference between paying zero deduction and paying a partial deduction can be commercially significant on high-volume contracts.

Key operational details

• Importers must register as authorised CBAM declarants with the competent authority in their EU member state.
• Embedded emissions are calculated per installation. Exporters outside the EU are expected to share verified emissions data with their EU buyers. Where actual data is not available, the European Commission publishes default values based on the average emission intensity of the exporting country or, as a fallback, the average of the worst-performing EU installations.
• CBAM certificates are purchased from a centralised platform, not on the open ETS market. Their price follows the ETS auction price but they are a separate instrument.
• Excess certificates can be repurchased at the original price, up to the number of certificates the declarant was required to purchase in the year of purchase.
• Free allocation of ETS allowances to EU domestic producers of CBAM-covered goods will be gradually phased out as CBAM ramps up, so that CBAM replaces (rather than adds to) the existing leakage protection.

The most common mistake

CBAM is frequently confused with a carbon tariff or import duty. It is neither. A tariff is a trade barrier set at a fixed rate or percentage; CBAM is a mirror mechanism that replicates a domestic carbon cost on imports. The legal distinction matters: CBAM is designed to comply with WTO rules by treating imported and domestic goods symmetrically (both pay a carbon price), whereas a unilateral tariff on carbon grounds would face immediate trade-law challenges.

A second common confusion is assuming that CBAM penalises countries with strict environmental regulation. The opposite is true. A country that already prices carbon domestically gives its exporters a built-in deduction. The mechanism penalises the absence of carbon pricing, not the presence of environmental policy.

Finally, some commentators treat CBAM as though it covers all imports into the EU. It does not. The mechanism applies only to the specific product categories listed in its regulation. Processed goods further down the value chain (for example, finished automobiles containing steel) are not currently covered, although the European Commission has committed to reviewing the scope.

What to watch

The European Commission is expected to assess whether to expand CBAM to additional sectors and downstream products. Any expansion would increase the commercial relevance of carbon pricing systems in exporting countries, including Brazil’s SBCE. For international professionals dealing with Brazilian operations, monitoring both the EU regulatory calendar and the SBCE implementation milestones is essential to anticipating cost exposure on cross-border trade in carbon-intensive goods.

Primary sources: Regulation (EU) 2023/956 establishing the CBAM (EUR-Lex, 2023); Regulation (EU) 2025/2083 simplifying the CBAM (EUR-Lex, 2025); Law 15,042 of 11 December 2024, creating the SBCE (Planalto, 2024).