EU CBAM: What’s new and what’s next?

Introduction  

As the EU’s Carbon Border Adjustment Mechanism (“CBAM”) races towards its definitive phase, the clock is ticking for importers: from 1 January 2026, only authorised declarants will be permitted to bring in-scope goods into the EU. Regulators are also facing time pressure in resolving implementation rules and technical challenges in advance of the approaching deadline. Various interesting CBAM developments have been announced by the EU recently, including the introduction of a de minimis threshold for importing CBAM goods and exemptions for hydrogen and electricity produced on the continental shelf or the exclusive economic zone of Member States, with more tabled for the start of December. Additionally, the UK has also just recently announced its own CBAM draft.

This Law-Now takes a closer look at each of the developments, exploring:

1. CBAM: what’s in scope;
2. What’s new;
3. What’s next;
4. Key takeaways;
5. Reactions; and
6. UK developments.

1. CBAM: What’s in SCOPE

As explained in more detail in our previous Law-Now articles here, here and here, the CBAM framework aims to prevent “carbon leakage”—where production shifts to jurisdictions with weaker climate policies—by ensuring that relevant imported goods incur a carbon cost equivalent to that applied to similar products under the EU Emissions Trading System (“ETS”). This levels the playing field between EU and non-EU producers of carbon-intensive goods.

CBAM, established under Regulation (EU) 2023/956 applies to the following high-carbon commodities:

• Cement;Iron and steel;
• Aluminium;
• Fertilisers;
• Electricity; and
• Hydrogen.

In-scope products are in basic form (i.e. upstream and (relatively) unprocessed products, as opposed to finished products such as whole cars, consumer and household goods, etc.) listed with their respective CN codes in Annex I of the Regulation.

The mechanism has been set up and planned to operate in the following phases:

1. Transitional period (1 October 2023 – 31 December 2025)
   
   Focused on monitoring and reporting embedded emissions without financial adjustments. In-scope importers submit quarterly CBAM reports detailing emissions and any carbon price paid in the country of origin.
    
2. Definitive phase (from 1 January 2026)
   
   From 1 January 2026, only authorised CBAM declarants may import goods within scope. Declarants must report the amount of carbon emitted during production of in-scope imported goods using independently verified data according to set methodologies, maintain records and must purchase and surrender CBAM certificates corresponding to the embedded emissions. Certificates will mirror the EU ETS carbon price, ensuring consistency between domestic and imported products.
   
   Phase-in of the CBAM framework will last until 31 December 2034, with full application commencing on 1 January 2035 (there will be an annual ramp-up while the ETS free allocation is progressively phased out).

With the transitional period ending on 31 December 2025 and the full regime commencing on 1 January 2026, businesses face a shifting regulatory landscape and increasing regulatory compliance demands. However, some key details of the definitive phase still remain under discussion.

2. What’s new: Recent updates since summer 2025

The Omnibus Regulation

Regulation (EU) 2025/2083 (the “Omnibus Regulation”), which entered into force on 20 October 2025, introduced targeted amendments to simplify CBAM compliance, meant to reduce the administrative burden for importers without diluting the measure’s intended environmental effects. These include:

• a new de minimis threshold for importing CBAM goods (the “single mass-based threshold”), exempting importers from CBAM obligations if the net mass annual import of in-scope goods is below 50 tonnes. The Commission have said this exempts 90% of importers, mainly SMEs and individuals who are small importers of CBAM goods, while retaining coverage of 99% of embedded emissions from carbon-intensive imported goods. This exemption will not apply to hydrogen and electricity. The threshold will also be reviewed annually for adjustment;
• Deadline delays: sales of CBAM certificates have been postponed to 1 February 2027 from 1 January 2026. Authorised CBAM declarants will acquire certificates in 2027 to cover embedded emissions from goods imported during the 2026 compliance year, priced on the 2026 EU ETS averages. The annual declaration date has also been delayed to 30 September 2026 from 31 May 2026. These changes give businesses extra time to adapt to the new system, but importantly, only delay, but not waive, 2026 compliance obligations;
• Quarterly certificate requirement reductions: authorised CBAM declarants will be required to hold certificates equal to 50% of the embedded emissions in imported goods (since the start of the calendar year) at quarter end, reduced from 80%. Note that when declarations are submitted, declarants will still need to cover 100% of embedded emissions.
• Offshore production: hydrogen and electricity generated entirely on the continental shelf (i.e. the shallow, underwater edge where a coastal country has exclusive rights and can build fixed structures for energy) or in the exclusive economic zone (“EEZ”, i.e. the ocean area up to 200 nautical miles from shore controlled by a country) of a Member State of the European Economic Area (“EEA”) and imported directly into the customs territory of the EU will be excluded from CBAM; and
• Simplified emissions calculations and carbon price deductions: default emissions values, based on the highest recorded intensity or regional benchmarks, will be introduced for countries lacking reliable data. If actual carbon costs cannot be confirmed, standard or default prices may be used. Deductions will also be allowed for carbon costs paid in other jurisdictions, provided evidence is available.

3. What’s next?

Forthcoming technical rules, draft implementing acts and delegated acts

While the Omnibus Regulation has provided some clarity and simplification, several critical legislative proposals and technical rules are still pending, with relevant implementing acts expected to be published in December 2025, with application from 1 January 2026, including:

• Calculation methodologies: the adoption of rules on embedded emissions calculation methodologies and for default values where data cannot be verified;
• CBAM Certificate adjustments: the adjustment of CBAM certificates to reflect the phase-out of free allowances under the EU ETS, ensuring that carbon prices applied to imports matches that for EU producers;
• Third-country carbon price deductions: rules on the deduction of carbon prices paid in foreign markets and required evidence; and
• Verifier accreditation: The European Commission published on 20 November 2025 a delegated regulation detailing requirements for the accreditation, oversight, and mutual recognition of CBAM verifiers. The regulation will apply from 1 January 2026.

The EC is expected to deliver a report on 31 December 2025 to the European Parliament and Council on the operation of CBAM during its transitional phase. The report will analyse information reported by importers to assess CBAM’s effectiveness at carbon leakage prevention, and review compliance practicalities and administrative burdens. If the report identifies significant issues, e.g. excessive burden, unintended market impacts or data gaps, the Commission may recommend further amendments or simplifications.

Extension of scope and support for EU exporters

Legislative proposals are also anticipated by the end of 2025 which may involve wide-ranging extensions to CBAM including:

• Downstream products made with in-scope goods (e.g. steel and aluminium);
• Anti-circumvention measures for non-EU importers; and
• Measures to support EU producers exporting products to international markets where domestic producers do not face equivalent carbon costs. The nature of these measures is not yet clear and could potentially include financial incentives or refunds.

4. Key takeaways for businesses

As CBAM’s definitive phase nears commencement, businesses importing in-scope and carbon intensive-goods are advised to:

• Stay on top of regulatory developments: affected businesses should keep up to date with developments from the European Commission, industry bodies and legal advisors to ensure early awareness of new and upcoming requirements and enable strategic forward planning;
• Prepare financially: the postponement of CBAM certificate sales until 2027 gives businesses a window to plan for financial impacts, but it is advised to begin cost forecasting based on EU ETS allowance prices and to consider the timing and scale of future certificate purchases. Where possible, gather evidence of carbon pricing paid in other jurisdictions;
• Invest in data collection and verification systems: businesses should consider reviewing (and upgrading, where necessary) their current data collection processes and systems to ensure that required information can be captured, verified and securely stored, and consider building relationships with third-party data verifying bodies; and
• Engage proactively with industry and regulators: participate in industry consultations, working groups and trade associations to help shape implementation of feedback and ensure that business realities are reflected in future guidance.

Businesses should be prepared to adapt quickly as new technical rules and legislative amendments are published. 

5. Reactions

International

COP30: At COP30 in November 2025, developing countries (including China, India and Saudi Arabia), continued to criticise CBAM as protectionist and introducing unfair trade barriers. Brazil proposed regular UN reviews of CBAM, which the EU strongly opposed, arguing that trade disputes should be resolved in trade forums, not climate negotiations.

WTO: The measures have also faced opposition in the WTO, with Russia requesting consultations in the WTO with the EU, alleging that CBAM violates the General Agreement on Tariffs and Trade, along with other international policies and WTO rules. The EU has declined this request. Whilst other nations have currently refrained from bringing formal claims under the WTO dispute settlement systems, various WTO members (including Brazil, China, India, Indonesia, Japan, South Korea, Taiwan and Turkey) have made statements that the CBAM measures are not consistent with the EU’s international obligations.

Industry Reactions

The below are just some illustrative examples of industry calls to the European Commission for clarity and the swift publication of information ahead of the commencement of the definitive phase.

Guidance requested by industry: An open letter published by the International Chamber of Commerce on 28 November 2025—representing over 45 million businesses worldwide—was addressed to the European Commissioner for Climate, Net Zero and Clean Growth, seeking urgent guidance on the implementation of CBAM. The ICC warned that the absence of detailed, practical, and clear implementing rules risks preventing businesses from planning for 2026, creates unnecessary trade friction, impedes supply chain resilience, and undermines the mechanism’s legitimacy.

Benchmarks questioned: Industry representatives have also raised significant concerns regarding the accuracy of draft Commission documents published in November 2025, which detail the calculation methodologies for the carbon footprints of non-EU production. Technical aspects—including proposed benchmarks for assessing CBAM goods and default CO₂ values assigned to foreign countries—have come under scrutiny. In particular, default emission values for certain products appear lower than those recorded for EU production, which has been alleged to be inaccurate. This discrepancy could make non-EU goods seem less carbon-intensive than they are in reality, potentially undermining the integrity and effectiveness of the EU CBAM.

6. UK developments: Application in the UK, the Windsor Framework and UK CBAM

Debate is ongoing whether CBAM will apply to Northern Ireland, given the Windsor Framework’s aim to avoid a hard border between the UK and the Republic of Ireland. If CBAM is not applied, there is concern that Northern Ireland could become a route for high-carbon goods to enter the EU market, undermining CBAM’s effectiveness. Conversely, applying CBAM could create a “carbon border” between Northern Ireland and the rest of the UK.

On 13 November 2025, the Council of the EU formally authorised the EC to begin negotiations with the UK on linking their ETS systems, which could enable qualification for mutual exemptions from each side’s CBAM. It remains unclear whether arrangements will be finalised by the beginning of CBAM’s definitive phase on 1 January 2026.

The UK is also intending to implement its own CBAM legislation, with the results of HMRC’s consultation on the draft primary legislation published on 27 November 2025. The Government confirmed that CBAM will be introduced from 1 January 2027, with enabling legislation included in the Finance Bill 2025-26. Following feedback from stakeholders, several changes have been proposed to the draft law, including:

• Delaying the inclusion of indirect emissions associated with the production of CBAM goods until 2029 at the earliest;
• Increasing the minimum registration threshold for value of CBAM goods; and
• Clarifications on CBAM rate calculations with annual adjustments reflecting phase-out of free allowances under the UK ETS.

Further detailed guidance will be published prior to the regime’s commencement, as well as additional legislation to set out the practical requirements for emissions determination, evidence and verification.

For further information on EU CBAM or the UK CBAM proposals please contact the authors or your usual CMS contact. Our CBAM team stays up to date with all upcoming CBAM developments, and will be covering these in the next of our CBAM Law Now series next month.