Adjusting to the adjustment mechanism: how EU firms are preparing for full-force CBAM in 2026

The metals sector, which provides precursor materials for many of the sectors covered by the EU’s new climate border levy, must make big adjustments to prepare for new requirements.

The EU’s Carbon Border Adjustment Mechanism (CBAM), a border levy on imports of carbon-intensive goods that has been discussed in Brussels for years, became a reality one year ago. Since the transitional phase began in October 2023, companies have had to start reporting the emissions of a select list of products. But in 2026, the real test will come as full implementation starts imposing the levy on imports.

CBAM aims to prevent carbon leakage — the scenario where companies move production to countries with laxer environmental regulations to avoid stringent climate policies. It’s designed to ensure that imported goods are subject to the same carbon pricing that EU companies face under the EU’s Emissions Trading System (ETS).

Carbon price tag

European Commission Vice President Valdis Dombrovskis has described CBAM as a key element of the EU’s climate policy. “Putting a price tag on products with a higher carbon footprint will help to prevent carbon leakage while respecting our international obligations in full,” he said when the law was agreed. “At the same time, the EU wants to promote cleaner industry in its partner countries and take a practical step towards a global system of carbon pricing.”

This means that importers will have to purchase carbon certificates based on the carbon content of their products, effectively aligning the cost of carbon emissions across domestic and foreign goods. It first applies to sectors at high risk of carbon leakage, such as steel, cement, ceramics, aluminium, and fertilisers, but will eventually apply to a wide range of goods.

Essentially, CBAM was a compromise between EU lawmakers and companies – a way to meet the union’s stringent climate goals while maintaining a level playing field for European businesses in the global economy. But is it working as intended?

Scrutinising the specifics

European companies are currently in the process of scrutinising the specifics of CBAM to ensure compliance. Many have invested in legal and consultancy services to grasp the regulatory framework and its implications for their supply chains. Understanding the carbon intensity of their imported products is crucial, as companies will need to report on the emissions associated with them. As the information is being collected, a clearer picture is emerging of exactly what CBAM is going to mean.

The metals sector will be particularly impacted by CBAM because precursor materials for the six industry sectors currently covered by CBAM are included within the scope, and companies in the metals sector have been adjusting to the new requirements.

“For steel, certain ferroalloys used in stainless steel production are affected, including ferronickel - an intermediate nickel product,” says Pablo Rodríguez Domínguez, a sustainability specialist with the Nickel Institute, which represents companies in the nickel sector. “Those companies importing ferronickel into the EU must report their embedded emissions since the end of January 2024 and will have to purchase CBAM certificates from 2026 onwards.”

Mitigating costs

To mitigate costs associated with CBAM, many firms are accelerating their efforts toward decarbonisation. By reducing their own carbon emissions, they can minimise the number of carbon certificates required. Companies are investing in renewable energy sources, improving efficiency, and exploring innovative technologies to lower their carbon footprints. This proactive approach not only lessens potential financial burdens under CBAM but also aligns with the broader EU climate goals. For the metals sector, this requires quite a lot of investment.

“The calculation of the embedded emissions is not a simple task and requires several data points that companies might not have at hand,” says Rodríguez Domínguez. “It’s also very different from other ongoing greenhouse gas calculations done in the industry, such as the EU Battery Regulation or the reporting according to ISO Standards and the greenhouse gas protocol.

He says CBAM also requires companies to create and implement new business processes for managing CBAM reporting, “including the assignment of new roles and responsibilities to staff. We discuss these topics with our member companies.”

As the 2026 deadline for full implementation draws near, firms are starting processes of supply chain re-evaluation and collaboration for track and trace activities, looking at sourcing materials and products from regions with stringent climate standards or those that employ sustainable practices.

This shift not only addresses compliance with CBAM but also caters to an increasingly environmentally conscious consumer base.

Upscaling collaboration

European manufacturers are upscaling collaboration with suppliers to enhance transparency regarding emissions data. This shift is also fostering stronger partnerships within supply chains, focusing on shared sustainability goals.

“Besides the organisational and administrative aspects, there are still several question marks that need to be addressed,” says Rodríguez Domínguez. “For example, the disclosure of confidential business information through CBAM is a topic that remains a challenge for companies."

He added: "We see a high risk of sensitive information on the upstream supply of raw materials, process efficiencies and energy consumption to be disclosed. Also, the data reporting in the CBAM Portal is still not as clear and feedback from companies shows that there are different possibilities to interpret the requirements.”

Companies will need to invest in data management systems by 2026 to track emissions rigorously. Accurate reporting will be essential, with firms required to provide detailed information about the carbon content of imported goods starting ahead of the official implementation.

To enhance credibility and effectiveness, EU companies may work towards establishing global industry standards for carbon reporting. That’s why many firms are investing in innovative new methods for tracking, but for this, harmonised metrics will be needed to simplify compliance for businesses and encourage international trade partners to adopt similar practices, promoting a global shift towards sustainability.

Is it worth it?

The big question looming over CBAM is whether all this effort and investment will be worth it. If CBAM doesn’t end up working as intended in both reducing emissions and avoiding carbon leakage, it could put European companies in an even more disadvantageous situation.

Rodríguez Domínguez says the EU needs to be careful that CBAM doesn’t end up stifling the development of materials that will be needed for the energy transition. “Raw materials such as nickel and nickel-containing stainless steels are at the beginning of many critical value chains that we need to achieve the energy transition,” he says.

“European value chains active in these technologies rely on the safe and continuous supply of raw materials such as ferronickel. There is an ongoing global competition for raw materials. CBAM could impact the availability of these raw materials to EU value chains," remarked Rodríguez Domínguez.

"We also must acknowledge that CBAM only covers, in our case, the upstream supply with raw materials but not the technologies containing those. There is a high risk that downstream products that are not falling under the CBAM scope are imported, impacting the competitiveness of EU value chains.”

CBAM represents a significant turning point in the EU's climate policy, and if it works as intended, it could protect European companies from the carbon leakage caused by global partners not pulling their weight in the global fight against climate change. But for it to work effectively, companies will need to proactively adjust to these new regulations.

As the deadline for full implementation approaches in 2026, the actions taken today will define the competitive landscape of tomorrow's market and contribute significantly to the EU's emissions reduction objectives.

[Edited By Brian Maguire | Euractiv's Advocacy Lab ]