EU Carbon Border Adjustment Mechanism (CBAM)

Article 20 requires Member States to sell CBAM certificates to authorised CBAM declarants in their Member State via a common central platform, with the certificates valid only in the year of purchase + the year of cancellation. Article 21 sets the price of CBAM certificates at the weekly average of the EU ETS auction closing prices for the previous calendar week (the Commission publishes the price weekly).

• Records of CBAM certificate purchases on the central platform
• Pricing audit trail aligned with the Commissions weekly EU-ETS-linked price

• Sourcing certificates from secondary markets (not permitted; certificates are non-transferable except per Article 16/23/24)

Article 22(1) requires the authorised CBAM declarant to surrender, by 31 May, the number of CBAM certificates corresponding to the embedded emissions declared in the prior years CBAM declaration. Article 22(2) requires the declarant to ensure that the number of CBAM certificates in its account in the CBAM registry at the end of each quarter corresponds to at least 80% of the embedded emissions in the goods imported since the beginning of the calendar year (the so-called quarterly 80% holding rule).

• Annual CBAM-certificate surrender records by 31 May covering the prior years declared embedded emissions
• Quarterly internal reporting demonstrating the 80% Article 22(2) holding rule for ongoing imports

• Late or short surrender on 31 May (Article 26 penalty per certificate not surrendered)
• Falling below the 80% quarterly holding threshold (subject to Article 26 enforcement)

Article 23 allows an authorised CBAM declarant to request the repurchase by the Member State of an excess of CBAM certificates held in its account, limited to a third of the certificates purchased during the previous calendar year, at the price paid by the declarant at purchase. Article 24 provides that on 1 July of each year the Commission cancels any CBAM certificates that were purchased two or more years earlier and remain in the account, without compensation.

• Repurchase requests submitted by 30 June each year (within the 1/3 cap)
• Internal forecasting to minimise Article 24 zero-compensation cancellation exposure

• Over-purchase of certificates above the foreseeable surrender + repurchase capacity
• Failure to track the 2-year cancellation cliff under Article 24

Article 11 requires each Member State to designate a competent authority for CBAM. Article 12 lists the Commissions tasks (Annex I/Annex II implementing acts, default values, transparency reporting, anti-circumvention). Article 13 imposes professional secrecy and information-sharing obligations on competent authorities and on the Commission, with carve-outs for cooperation with customs, tax, anti-fraud and the European Anti-Fraud Office (OLAF).

• Identification of the competent authority for each Member State where the entity holds CBAM declarant authorisation
• Records of any cross-authority information requests received under Article 13

Article 14 establishes the standardised electronic CBAM registry (operated by the Commission) holding declarant authorisations, CBAM declarations, verification reports, certificate accounts, and operator registrations. Article 16 sets the rules for declarant accounts (purchase, holding, surrender, repurchase and cancellation of CBAM certificates). The CBAM registry is interoperable with national customs systems.

• Records of the entitys CBAM registry account activity (certificate holdings, surrender, repurchase, cancellation)
• Integration records between the entitys ERP/customs systems and the CBAM registry

• Off-register tracking of CBAM positions inconsistent with the registry of record

Article 15 requires competent authorities and the Commission to perform risk analyses on CBAM declarations and on declarant compliance, using common criteria, and to share results across Member States and with customs/tax/anti-fraud authorities. Risk indicators include declared quantities vs customs data, default-vs-actual emissions divergence, repeat findings and country-of-origin risk.

• Internal risk-flag dashboard mirroring Article 15 risk indicators (CN-code divergence, default-vs-actual swings, country-of-origin shifts)

• Declarations that diverge materially from customs data without internal investigation

Article 17 enumerates the substantive authorisation criteria assessed by the competent authority (Article 5 application + Article 17 conditions): customs/tax good-standing for the preceding five years, financial and operational capacity to discharge CBAM obligations, no serious record of fraud or money-laundering. The competent authority may impose conditions and may revoke authorisation for breach of those conditions.

• Internal compliance file demonstrating the Article 17 conditions are met and maintained

• Material change in compliance posture not promptly notified to the competent authority

Article 18 lays down the accreditation regime for verifiers (national accreditation body under Regulation 765/2008; Annex VI conditions). Article 19 empowers competent authorities to review CBAM declarations within four years of submission, may require additional information, may amend declarations and may communicate revised surrender obligations. Article 19 also coordinates with the EU ETS auctioning and EU ETS Monitoring/Reporting/Verification rules.

• Verifier-accreditation evidence (records confirming accreditation by an EA-MLA national accreditation body)
• Records of any Article 19 review interaction with the competent authority and any resulting amendments

• Engagement of a verifier whose accreditation scope does not cover Annex I CBAM products
• No retention of declaration evidence for the 4-year Article 19 review window

Article 30 requires the Commission to monitor the functioning of CBAM and to submit a report to the European Parliament and the Council by the end of the transitional period (and every two years thereafter) covering the assessment of carbon-leakage mitigation, the case for extending Annex I, the indirect-emissions regime, the de minimis and exporter-rebate issues, and the impact on EU industry. Article 31 governs the phase-in coordination with the EU ETS free allocation of allowances: as free allowances under the EU ETS for CBAM sectors are phased out (annually from 2026 to 2034 per the EU ETS Directive 2003/87/EC), the CBAM obligation is phased in by the same factor.

• Internal model of the CBAM phase-in factor aligned with the EU ETS free-allocation phase-out schedule
• Engagement with the Commission Article 30 reporting and reviews (consultation responses, position papers)

• Modelling CBAM cost without the Article 31 phase-in factor
• Treating CBAM as fully applicable from day one of 2026 (it is phased in proportionally to ETS free-allocation phase-out)

Article 25 obliges customs authorities not to allow the importation of Annex I goods other than by an authorised CBAM declarant, requires customs authorities to inform the competent authority of any importation, and allows customs authorities to share data with competent authorities and the Commission (subject to professional-secrecy safeguards).

• Customs-declaration workflow ensuring the authorised CBAM declarant is identified for every Annex I import
• Procedure to handle customs-authority requests for CBAM-related information

• Annex I imports declared at customs without an identified authorised CBAM declarant

Article 26 imposes administrative penalties on an authorised CBAM declarant that fails to surrender, by 31 May, the number of CBAM certificates corresponding to the embedded emissions in the goods imported during the prior calendar year. The penalty is equal to 3 times the average price of CBAM certificates in the year of import, per certificate not surrendered, indexed annually to the European consumer price index. Member States may impose additional sanctions. Penalty does not extinguish the surrender obligation.

• Internal compliance program demonstrating the surrender obligation is met by 31 May
• Reserve / accrual analysis for the Article 26 penalty exposure if a shortfall materialises

• Treating Article 26 penalty as the cost of non-compliance (the surrender obligation persists)

Article 27 empowers the Commission, on its own initiative or following requests from Member States or interested parties, to investigate practices of circumvention (e.g. slight modifications of products to avoid Annex I CN-codes, resource shuffling, distortive cost-shifting between products). The Commission can adopt delegated acts to extend CBAM scope where circumvention is established.

• Internal policy that any CBAM-driven product/process change is documented with a Article 27 risk assessment
• Records of any Article 27 investigation involving the entitys supply chain

• Product re-classifications or process splits designed to fall outside Annex I CN-codes without a substantive business rationale

Article 10 establishes the registration regime for operators of third-country installations in the CBAM registry. Registration enables the operator to submit installation-specific emissions data for use by authorised CBAM declarants importing from that installation, and allows operators to claim confidentiality protections. Registration is voluntary on the operator side but is a precondition for actual-emissions reporting being available to importers.

• Records of third-country installations supplying the entity and their CBAM-registry registration status
• Supplier engagement on data-sharing arrangements to support actual-emissions reporting

• Sourcing from installations that are not registered, forcing reliance on default values

Article 4 prohibits importation of Annex I goods into the customs territory of the Union except by an authorised CBAM declarant. This authorisation requirement is the central gatekeeping mechanism of CBAM.

• Authorised CBAM declarant status (held by the entity or by an indirect customs representative acting for the entity)
• Customs-broker arrangements confirming CBAM-declarant authorisation for the importer of record

• Importing Annex I goods without authorised CBAM declarant status or an authorised indirect representative
• Customs declarations filed by parties without verified CBAM authorisation

Article 5 sets the application procedure for authorised CBAM declarant status before the competent authority of the Member State of establishment, including conditions on the applicant (incl. fiscal good standing and the absence of serious customs/tax-fraud violations in the preceding five years), the financial-security regime (guarantee) for non-EU declarants, and the standard 120-working-day review period. Authorisation is registered in the CBAM registry.

• CBAM-declarant application records including the supporting eligibility and good-standing evidence
• Financial security / guarantee arrangements where the entity is established outside the Union

• No procedure to track authorisation expiry / renewal
• Failure to provide the guarantee required for non-EU applicants

Article 6 requires authorised CBAM declarants to submit, by 31 May of each year, a CBAM declaration covering the previous calendar year. The declaration includes total imported quantities of each Annex I good, total embedded emissions (direct and indirect where applicable), total number of CBAM certificates to be surrendered, copies of the verification reports issued under Article 8, and any carbon price paid in the country of origin (Article 9).

• Annual CBAM declaration filed by 31 May covering the prior calendar year
• Internal reconciliation of imported tonnages, embedded emissions, verification reports and surrender obligations
• Records of any carbon price paid in the country of origin per Article 9

• Late or incomplete CBAM declarations
• Declarations missing the Article 8 verification report or the Article 9 carbon-price documentation

Article 7 establishes the methodology for calculating embedded emissions in Annex I goods. Actual emissions are determined per the methodologies in Annex IV (mass balance, source streams, monitoring plans aligned with the EU ETS Monitoring and Reporting Regulation). Where actual emissions cannot be adequately determined, default values per Annex IV apply (Commission to publish country/sector defaults). The methodology distinguishes between direct emissions and (for certain sectors) indirect emissions from consumption of electricity used in production.

• Monitoring plans for each third-country installation supplying Annex I goods to the entity
• Embedded-emissions calculation records aligned to Annex IV
• Documented use of default values where applicable, with the corresponding evidence base

• Use of self-declared third-country emissions without an Annex IV methodology trail
• Calculation that omits indirect emissions for sectors where indirect emissions are required

Article 8 requires authorised CBAM declarants to procure verification of the embedded emissions reported in the CBAM declaration by a verifier accredited under Article 18. The verification is performed against the principles in Annex V and includes site visits, sampling procedures and a verification report with a positive verification opinion or a reasoned non-conformity finding.

• Verification reports under Article 8 covering each annual CBAM declaration
• Accreditation evidence for the verifier (Article 18, national accreditation body / EA-MLA / IAF-MLA)
• Internal management of verifier findings and corrective actions

• Use of an unaccredited verifier
• Verification reports lacking site-visit evidence or reasoned conclusions

Article 9 entitles an authorised CBAM declarant to claim a reduction in the number of CBAM certificates to be surrendered, corresponding to the carbon price effectively paid (after any rebate or compensation) in the country of origin of the imported goods. The claim must be supported by documentation that has been verified by an accredited verifier and certified by an independent person.

• Article 9 carbon-price-paid documentation for each declared installation
• Verifier-certified evidence of the foreign carbon price and the absence of rebates/exports compensation

• Article 9 claims without verifier certification
• Failure to net rebates and compensation from the claimed foreign carbon price

Article 1 establishes the Carbon Border Adjustment Mechanism applied to embedded emissions in goods listed in Annex I when imported into the customs territory of the Union, to prevent the risk of carbon leakage and thus reduce global carbon emissions and support the goals of the Paris Agreement. CBAM operates as an import-side complement to the EU ETS, ensuring that imported goods face an equivalent carbon cost to that paid by EU producers covered by the ETS.

• Statement linking the entity's CBAM obligations to the carbon-leakage rationale and the EU ETS
• Internal documentation of which Annex I goods the entity imports

• Treating CBAM as a standalone climate-reporting regime (it is an import-side ETS instrument)
• Importing Annex I goods without recognising the CBAM applicability

Article 2 applies CBAM to goods listed in Annex I originating in a third country, when those goods or the inward-processing products derived from those goods are imported into the customs territory of the Union. The Annex I sectors at the start of the definitive period are cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen. Article 2 contains the de minimis exemption (intrinsic value not exceeding EUR 150 per consignment, raised to a mass-based 50-tonne threshold by the 2025 Omnibus amendment). Goods from countries fully integrated in the EU ETS or with an equivalent carbon-pricing system linked to the EU ETS (currently Iceland, Liechtenstein, Norway, Switzerland) are excluded.

• Inventory of imports against the Annex I CN-codes (cement, iron and steel, aluminium, fertilisers, electricity, hydrogen)
• Threshold-monitoring records demonstrating the de minimis position
• Origin-country analysis (excluded ETS-linked countries vs covered third countries)

• No CN-code mapping of imports against Annex I
• No de minimis tracking with the current 50-tonne mass threshold
• Treating EFTA-origin Annex I imports as in scope (Iceland/Liechtenstein/Norway/Switzerland are excluded)

Article 3 supplies the definitions used throughout the Regulation, including: 'goods', 'embedded emissions' (direct and indirect emissions released during the production of goods), 'authorised CBAM declarant', 'installation', 'operator' of a third-country installation, 'CBAM certificate' (an electronic certificate corresponding to one tonne of CO2-equivalent embedded emissions), 'CBAM registry', and the technical definitions for direct/indirect emissions, production process, system boundaries, default values, and actual emissions monitoring methodologies.

• Definitions glossary aligning the entity's internal terminology to Article 3 (direct vs indirect embedded emissions, default values vs actual emissions, system boundaries)

• Inconsistent use of 'embedded emissions' in declarations
• No mapping of internal monitoring methodology to the Article 3 definitions

Articles 32-35 govern the transitional phase of CBAM from 1 October 2023 until 31 December 2025. During the transitional phase: Article 32 sets the scope (reporting only, no financial obligation, no certificate surrender). Article 33 maintains normal customs treatment of imports. Article 34 imposes reporting obligations on customs procedures. Article 35 requires importers (or indirect customs representatives) to submit quarterly CBAM reports by the end of the month following each calendar quarter, covering total imported quantities, embedded emissions (direct + indirect), and any carbon price paid in the country of origin. The transitional period is the structured on-ramp to the definitive period that begins on 1 January 2026.

• Quarterly CBAM transitional reports submitted by the end of the month following each calendar quarter (entire transitional period)
• Internal reconciliation between transitional reporting and the definitive-period authorisation/declaration regime

• Missed or late quarterly transitional reports
• Lack of continuity between transitional reporting data and definitive-period actual-emissions methodologies

Article 36 provides that the Regulation entered into force on the day following its publication in the Official Journal (17 May 2023) and applies from 1 October 2023, with the financial-obligation provisions (Articles 4-24, 26, 31) applying from 1 January 2026. The Annex I list and certain procedural articles are subject to delegated/implementing acts adopted in the meantime.

• Compliance calendar tracking the staged application dates (1 October 2023 transitional, 1 January 2026 definitive)

• Compliance plan that does not distinguish transitional vs definitive obligation dates