CBAM compliance: a CFO's guide to EU carbon border costs and pricing

The European Commission states that the carbon border adjustment mechanism applies in its definitive regime from 1 January 2026. It covers imports of selected goods in carbon-intensive sectors: cement, iron and steel, aluminium, fertilisers, electricity and hydrogen. The legal obligation rests with the EU importer, formally the authorised CBAM declarant. PwC notes that from 1 January 2026 CBAM goods may be released for free circulation only by an authorised declarant, subject to the exceptions in the rules.

For exporters outside the Union, the point is that the importer's obligation flows back to them through price, data requests and contract terms. An EU buyer will ask for installation-level emissions data, because the declaration is only as good as the data behind it. It will also ask who bears the cost of certificates. A supplier that cannot answer both questions risks losing business to one that can, even in a year when the financial cost is still small.

The rules also changed in 2025, which has produced confusion about what applies. The simplification package introduced a single mass-based threshold. ICAP reports that the new threshold exempts 90% of importers who bring in 50 tonnes or less a year, while still covering 99% of embedded emissions. The effect is that small importers are largely out of scope, and most of the emissions remain in. A mid-sized exporter selling through large EU distributors is therefore more likely to be pulled into data requests than one selling small volumes to many micro-importers.

The timetable now runs as follows. ICAP reports that the start of certificate sales was postponed from 1 January 2026 to 1 February 2027, and that declarants will acquire certificates in 2027 for the emissions embedded in 2026 imports. The annual declaration deadline moves to 30 September, previously 31 May, and the first declaration and surrender deadline is 30 September 2027. The cost is therefore incurred in 2026 but cashed in 2027, a timing gap that finance teams should reflect in accruals and in customer terms.

The immediate actions are to list every product you ship to the EU that falls under a CBAM code, identify which of your EU customers are authorised declarants, and ask each for their data and contract expectations. Do this before the first quarter closes. Many exporters will find that more of their EU revenue is in scope than they assumed, particularly where products are classified under steel, aluminium or fertiliser codes through a downstream supplier.

CBAM mirrors the phase-out of free allowances in the EU emissions trading system. According to a law-firm summary of the Regulation, the schedule steps up from 2.5% in 2026 to 5% in 2027, 10% in 2028, 22.5% in 2029 and 48.5% in 2030, before reaching 73.5% in 2032 and 100% in 2034. In plain terms, the share of embedded emissions for which certificates are due begins very low and ends at the full amount.

This shape tempts finance teams to defer attention: the 2026 liability is small. We think that is a mistake for any business with contracts that run beyond two or three years, or with capital expenditure decisions that will shape emissions intensity for a decade. A framework agreement signed in 2026 for delivery through 2030 spans the period in which the charged share rises from 2.5% to 48.5%. A fixed price that ignores that ramp transfers a growing, uncapped cost to the supplier.

The schedule also changes the economics of decarbonisation investment. An electric arc furnace, a switch to lower-carbon feedstock or a renewable power purchase agreement lowers the embedded emissions on every tonne shipped to the EU, and the saving grows as the charged share grows. Capital committees evaluating such projects should model the avoided CBAM cost on the phase-out schedule, not on 2026 values, alongside the value of retaining EU customers who will favour verified lower-carbon supply.

Scope is also expanding. ICAP reports a proposed extension of CBAM to an additional 180 aluminium- and steel-intensive downstream products, with implementation from 1 January 2028. Manufacturers of fabricated metal goods that believe they are outside the mechanism should check the product list when it is finalised, because the downstream extension could bring their products into scope with little commercial warning.

The practical step is to model costs on the phase-out path for each major contract and customer, not as a single annual figure. Present the model to the executive committee as a range driven by three variables: the charged share, the certificate price and the emissions intensity of your products. Then identify the contracts signed or renewing in the next twelve months that cross the steep part of the curve, and prioritise them for renegotiation.

One further point on scope: the mechanism treats electricity and hydrogen differently from physical commodities, and the rules for indirect emissions vary by product. Exporters of cement and fertilisers should confirm with their advisers which emissions count for their goods. Mistakes at this stage are expensive, because an error in the boundary of the calculation affects every consignment and every customer statement built on it, and corrections after a declaration are slow to agree.

In 2026 the Commission publishes a quarterly CBAM price based on the average auction clearing price of EU allowances. GMK Center reports that the price was set at EUR 75.36 per tonne for the first quarter and EUR 75.28 for the second, and that for the third quarter it stands at EUR 82.32 per tonne of CO2. SteelOrbis reports that the third-quarter price is up 9.4 percent on the second quarter. A move of that size in one quarter is not an anomaly in a traded carbon market.

The mechanism changes in 2027. S&P Global reports that from February 2027 certificate pricing shifts to a weekly calculation, and that prices will be published weekly. Because the price will follow the market more closely, importers will face more variability in the cost of the same tonne of embedded emissions depending on when they buy. For the exporter, the question is whether to share that variability with the importer or to absorb it.

A fixed surcharge per tonne of product, set at the start of a year, is easy to quote and hard to defend. If the certificate price rises, the supplier absorbs the difference; if it falls, the customer will ask for a rebate. We recommend an indexed clause that references the Commission's published price for the relevant period, applied to the product's agreed embedded-emissions figure and the charged share for that year. The clause is transparent, self-adjusting and easy for both parties to audit.

Finance should also watch working capital. ICAP reports that the quarterly holding requirement has been reduced to 50% of embedded emissions in goods imported since the beginning of the calendar year. Importers will hold certificates against that obligation, and will look to recover the carrying cost. Exporters who offer delivered terms, in which they act as importer of record or fund the importer's certificates, need to include that financing cost in price, and to consider hedging the exposure alongside their other carbon and energy positions.

A simple governance rule helps. Set a price review date each quarter in 2026 and each month in 2027, compare the realised certificate price with the assumption in your price book, and report the variance to the commercial committee. If the variance is passed on through the clause, the committee's job is to ensure that it is. If it is absorbed, the committee should know by how much and for which customers.

Treasury teams can add value here. Quarterly pricing in 2026 and weekly pricing from 2027 create an exposure that behaves like a small commodity position. If your delivered-price contracts make you responsible for certificates, consider whether the exposure is large enough to justify hedging, and whether your existing carbon or energy hedges can be extended. For most mid-sized exporters, pass-through clauses will be cheaper and simpler than hedges.

Importers who cannot obtain verified installation-level data may use the Commission's default values for embedded emissions. These are deliberately set to encourage actual data. ICAP reports that most of the newly established default values will rise by 10% in 2026, 20% in 2027 and 30% from 2028 onwards, with fertiliser defaults also rising each year to reflect inflation. The longer an exporter relies on defaults, the larger the penalty built into the numbers.

For an exporter whose true emissions intensity is lower than the default, the mark-up compounds the loss, because the importer is billed on a figure that overstates the product's carbon content. The commercial consequence is that EU buyers will favour suppliers who can provide verified data and will pass the default-value penalty to those who cannot. Data quality becomes a price lever, and it can be a sales argument, particularly in steel and aluminium where producers differ widely in process and energy source.

Building usable data is a project in its own right. It requires installation boundaries, direct and indirect emissions where relevant, production routes and precursor inputs, all with documented methods. Verification by an accredited body is needed for the declaration, and the importer will want assurance that the supplier's data will pass. Treat this as a controlled process with owners and evidence, comparable to the way a company produces audited financial statements.

Suppliers of your own inputs matter too. A producer of fabricated aluminium products buys metal whose embedded emissions flow through the chain. If your upstream suppliers cannot provide data, you will inherit defaults on the precursors. Add data warranties to your purchase terms and ask key suppliers for their plans. For downstream goods due to enter scope, begin the same supplier dialogue now, ahead of the 2028 start.

The action for the CFO is to ask the operations director for two numbers by product line: actual emissions intensity from the best available data, and the applicable default value for 2026, 2027 and 2028. The gap, multiplied by volume, certificate price and charged share, is the money at stake in your data programme. Compare it with the cost of measurement and verification, and fund the programme where the gap is largest.

Data has a second use. Verified emissions figures, collected for CBAM, are the same figures that customers, lenders and investors increasingly ask for in sustainability reporting and in procurement questionnaires. A company that builds one controlled dataset can serve all of those audiences, and avoid the cost of answering inconsistent requests with inconsistent numbers. Treat the CBAM data programme as shared infrastructure for the business, not a one-off compliance project.

CBAM does not fall evenly. The World Bank's analysis of exposure shows how concentrated it can be. Mozambique sends 97 percent of its aluminium exports to the EU, and the bank estimates that it has the highest economic exposure at 0.6 percent of GDP, followed by Ukraine at 0.5 percent and Egypt at 0.2 percent. All other countries in its analysis face exposure of less than 0.1 percent of GDP. For individual exporters the relevant measure is the share of revenue sold into the EU in covered products.

Carbon prices paid in the country of origin can reduce the liability. The World Bank notes that carbon prices in several exposed exporters, including Kazakhstan, South Africa and Ukraine, are below USD20 per tonne, well under EU levels, so the offset is partial. Where a carbon tax or trading scheme already applies, exporters should record what is paid and ensure that it is evidenced in the form that EU rules require. The Commission was expected to adopt an implementing act on the methodology for deducting carbon prices paid abroad, so check its status with your adviser.

The mechanism is spreading beyond Europe. GOV.UK confirms that the government will introduce a UK CBAM on 1 January 2027, applying to imports of aluminium, cement, fertilisers, hydrogen, and iron and steel. A group with operations in several jurisdictions may therefore face parallel regimes, with different data formats and price references. Design the data system once, around the product and installation, so it can feed more than one declaration.

Competitive effects matter as much as direct cost. If competitors in your market have lower emissions intensity, or already hold verified data, they will win share at the margin as the charged share rises. Equally, if EU producers pass their own carbon costs on to customers, the CBAM adjustment reduces the price gap with imports. Model both sides: your cost and your competitors' positions in each EU segment you serve.

The decision for the leadership team is to segment EU revenue into three groups: lines with low exposure that need only monitoring, lines with material exposure that need a data and pricing plan now, and lines where the economics may not hold at the end of the phase-out. Review the third group with the board, because the right answer may be to change product mix, invest in lower-carbon production or redirect volume to other markets.

The same logic applies to the response to the UK regime. A group that supplies both the EU and the UK should aim for one product-level data set and two reporting outputs, because the sectors overlap and the questions customers ask will be similar. Build in time to adapt as the UK rules and the EU rules evolve, and as any alignment between the two regimes becomes clearer, rather than assuming that today's formats will remain in place.

A well-drafted supply agreement addresses five matters. First, who is the importer of record and authorised declarant, since that determines who buys the certificates. Second, how embedded emissions are defined, measured and verified, and which party bears the cost of verification. Third, how the certificate cost is calculated and passed on. Fourth, what happens if data is late or inadequate and a default value must be used. Fifth, how and when the account is trued up after the declaration.

The pass-through formula is the heart of the clause. We favour a structure with a visible line for the carbon charge: the agreed embedded-emissions figure per tonne of product, multiplied by the charged share for the year and the published certificate price, less any evidenced carbon price paid in the country of origin. A formula like this keeps the base price clean, makes the carbon cost auditable and allows the parties to adjust it as rules and prices change.

Sales leaders will worry about competitiveness, and they are right to. Customers dislike separate surcharges and may demand that suppliers absorb the cost. The better response is to offer certainty on data and transparency on the formula, to differentiate on verified low-carbon supply where you have it, and to be clear about which cost elements are regulatory and therefore beyond your control. In our experience of how pricing conversations go, buyers accept cost pass-through they can verify far more readily than a price rise they cannot.

Finance should insist on controls. Require the contract to include a data warranty and a right to audit, an obligation to notify changes in installation or production route, and a mechanism for default values that does not allow the penalty to land silently on one side. Include a change-in-law clause because the rules are still being refined: the Commission has already adjusted thresholds, deadlines and default values, and further changes are expected.

Internally, give one executive accountability for the carbon clause across the portfolio, with a standard template, a clause library for exceptions and a register of contracts that depart from it. Review the register at each quarter-end alongside the certificate price. This is dull governance, but it prevents the most expensive CBAM failure, which is discovering in 2027 that large volumes were sold under terms that leave the supplier carrying an uncapped carbon cost.

Contract tenor deserves a rule of thumb. For agreements shorter than twelve months, an indexed pass-through with a quarterly reset is usually sufficient. For agreements longer than two years, add a formal review at each anniversary tied to the published schedule, and give both parties a right to reopen the price if rules change. This keeps negotiation focused on a few predictable moments rather than on ad hoc disputes during a year when volumes are flowing.

A usable model has four layers. At the product level, record embedded emissions per tonne from the best available data and the applicable default value. At the customer level, apply the charged share and the certificate price for the relevant period. At the contract level, apply the pass-through formula and the true-up. At the group level, aggregate by quarter, with sensitivities to price and to data coverage. The output should be a rolling forecast of cost, recovery and net exposure by customer and by product.

The calendar should be shared by finance, sales, customs and operations. The key dates in the Commission and ICAP material are the start of certificate sales on 1 February 2027, the move to weekly pricing from the same month, and 30 September 2027 as the first declaration and surrender deadline. Around those dates, set internal milestones: data submitted by suppliers, verification completed, customer statements issued and true-up agreed. Missing any of them risks default values being used or disputes being left open.

Accounting needs early attention. Obligations arise on imports from January 2026 even though certificates are bought in 2027, so importers may need to recognise a liability, and contracts that pass costs to exporters create receivables or price adjustments. Agree with your auditors the recognition policy, the treatment of expected recoveries and the disclosure of uncertainty about future prices and rules. Tax and customs advisers should confirm the position in each jurisdiction in which you import or export.

People and systems matter. Appoint a CBAM lead with authority across functions, and give them a small team drawing on trade compliance, sustainability, finance and commercial. Choose systems that link production data to shipment records, since CBAM declarations depend on matching the right emissions data to the right consignment. Avoid building a bespoke platform before the process is stable; the rules are changing, and adaptable tools will serve better than elaborate ones.

A closing caution: this guide is information, not tax, customs or legal advice, and the rules have been amended repeatedly. The enduring points are that cost rises over time, price is volatile, data is a lever and the commercial terms decide who pays. Companies that settle those four questions in 2026 will enter the first surrender with a tested model, signed clauses and customers who regard them as the reliable supplier.

Finally, remember the people on the other side of the table. EU importers are managing their own first compliance year, and many will lack the systems to receive and validate supplier data at scale. Suppliers who offer a clear data pack, a named contact and a predictable calendar will be easy to work with. That reliability has commercial value that does not appear in the CBAM formula but does influence which suppliers are retained.

Karter McKinley supports strategy and transformation work on CBAM: building the product-level exposure and cost model, aligning finance and sales on a pricing and contract position, and setting the calendar and governance for the first declaration. We work alongside your tax, customs and legal advisers, and this guide is information rather than tax or legal advice.