As global climate policy accelerates, the European Union’s Carbon Border Adjustment (CBAM) is moving from concept to consequence. What began as emission reporting is now a real financial enforcement. The journey of EU ETS has evolved from emission reporting to addressing challenges like carbon leakage and establishing carbon pricing mechanism to drive climate action across Europe. The businesses that do not act now may risk falling behind. While the basics of CBAM Regulation are now familiar to global businesses, 2025 marks a critical transition year, and the steps taken now will define competitiveness in 2026 and beyond. Importers of carbon intensive goods like steel, aluminum, cement, and fertilizers will face carbon linked cost on their EU bound shipments. If you are a part of a global supply like a producer, importer, or a compliance officer, understanding how CBAM works, and its latest news is not optional. In this blog, we break down where CBAM stands today, what’s coming next and how companies can prepare. 

What is CBAM?

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The Carbon Border Adjustment Mechanism is the world’s first carbon border tax introduced by the European union. Its primary aim is to reduce carbon emissions and address the issue of carbon leakage, which occurs when companies move production to countries with less stringent climate policies. CBAM imposes a cost on imported good equal to what EU producers would pay under the EU Emissions Trading System (EU ETS). 

How CBAM Evolved?

CBAM was proposed in July 2021 as a part of the EU ETS ‘Fit for 55’ climate package, which aims to reduce carbon emissions by 55% by the year 2030 when compared to carbon emissions from 1990s. It entered into force in October 2023, launching a transitional phase that mandates emissions disclosure without financial consequence. The objective of transitional phase is capacity building. This transitional phase, lasting till December 2025, gives businesses time to align their supply chains, improve emissions reporting and understand CBAM requirements. Importers have been required to submit quarterly reports on embedded emission via the CBAM Transitional registry.

The reports must include quantity of goods imported, direct and indirect CO2 emissions and any carbon price paid abroad. The transitional phase sends a clear policy signal to global trading partners. Carbon pricing will play a central role in market access to Europe. Exporters who prepare early will be better positioned to remain competitive once the mechanism fully comes into effect. 

Click on this link to know more about CBAM: https://incorpadvisory.in/blog/complete-overview-of-the-carbon-border-adjustment-mechanism/  

CBAM: From Disclosure to Payment in 2026

Since October 2023, importers of carbon-intensive goods, such as steel, aluminum, cement, fertilizers, hydrogen and electricity have to report embedded emissions in accordance with CBAM. However, this transitional phase has involved no financial penalty serving as a dry run. However, that is scheduled to change in January 2026. 

From that date, importers will need to purchase and surrender CBAM certificates with the price per certificate aligned to the EU emissions Trading Systems (EU ETS). This means companies will directly pay for the carbon content of their imports, effectively introducing a carbon cost into cross border procurement and pricing models. 

2025 Reforms: Easing Compliance, Raising Stakes

In February 2025, the European commission adopted the Omnibus I package introducing significant simplifications for businesses navigating CBAM. It is designed to enhance competitiveness, reduce administrative burdens and attract investment. It aims to help cultivate a supportive business environment and accelerate the transition to a sustainable economy. A de minimis threshold was introduced where companies importing less than 50 tones/year of CBAM goods are now exempt. Reporting deadline has been extended for emissions reporting from May to August 31, giving businesses more time to gather and validate data. 

Companies now only need to hold 50% of their quarterly obligation of certificate holding requirements in advance, down from 80%. These reforms reflect the EU’s intent to balance regulatory ambition with practicality, particularly for SMEs and multinational supply chains adjusting to the new framework. 

Countdown to 2026: Real Financial Impact

Starting in 2026, the financial implications of CBAM will have significant impact. Every ton of carbon embedded in imports will require a certificate purchase, with market-based pricing linked to the volatile EU ETS. This is what it means for importers of covered goods: 

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  • Increased cost of goods sold for high emissions materials 
  • Greater complexity in supplier negotiations 
  • Exposure to carbon price volatility 
  • A strong incentive to decarbonize supply chains 

InCorp Advisory recommends companies begin modeling financial exposure now, considering future EU ETS price scenarios, and building internal systems for emissions monitoring, reporting and verification (MRV). 

Global Pushback and New Trade Frictions

CBAM has not gone unnoticed by major trading partners. In early 2025, India, China and Russia raised formal objections through the World Trade organization (WTO), arguing that CBAM creates unfair barriers to trade. 

At the same time, countries such as the UK, Canada and the United States are exploring CBAM-like mechanisms of their own, a shift that could create a ‘Carbon club’ of trade aligned economies using similar pricing schemes. For businesses, this adds complexity to global compliance, but also strategic opportunity in aligning early. 

The Future of CBAM: More Sectors, More Products

The EU is not stopping with six sectors. In July 2025, it launched a public consultation on extending CBAM to downstream products such as cars, electronics, and industrial machinery. By 2030, CBAM may include chemicals, plastics and maritime fuels. 

Simultaneously, the EU is considering ‘CBAM plus’, a framework that revisits CBAM revenue in clean energy infrastructure, facilitates technology faster, and recognizes non pricing mitigation strategies. By bridging capacity gaps and channeling funds towards local development, CBAM plus seeks to promote decarbonization without reinforcing global inequities. As additional countries consider carbon border policies, measures that align climate objectives with development priorities are vital to preventing a new global carbon divide. This border evolution means companies must treat CBAM not just as a tax, but a strategic transformational tool, one tied to product design, sourcing and ESG transparency. 

Strategic Roadmap: What Businesses Must do in Late 2025

Until the end of the transitional phase, InCorp Advisory recommends businesses the following: 

  • Assess exposure: Map imported goods covered by CBAM regulation including volume thresholds and emission profiles. 
  • Request verified data from suppliers: Build systems to gather, validate, and report embedded emissions data with audit ready precision.  
  • Model financial Impact: Run cost impact simulations based on different EU ETS pricing assumptions. 
  • Prepare MRV system: Implement digital tools to streamline monitoring, reporting and certificate surrender obligations. 
  • Engage trade and ESG experts: Build internal knowledge across sustainability, tax, finance and legal teams or work with integrated advisors like InCorp Global. 

Why Choose InCorp Global?

At InCorp Global, we bring together regulatory expertise, ESG strategy and global trade insight to deliver end to end CBAM compliance and competitiveness. From a importer adjusting procurement strategies or a multinational optimizing supply chain emissions, we provide the following: 

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  • CBAM impact assessments 
  • Supply chain decarbonization strategies 
  • MRV system design and implementation 
  • Certificate surrender planning and modeling  
  • Policy updates and global risk monitoring  
  • Carbon Pricing and Emission Reporting 

Authored by:
Shreyash Khadse | Sustainability & ESG 

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