CBAM is Here

U.S. manufacturers exporting to the EU cannot afford to ignore regulations like CBAM, and the data requirements of those in scope for them.”

The European Union’s Carbon Border Adjustment Mechanism (CBAM) is here, and it is ushering in a new era for carbon emissions reporting worldwide. While CBAM legislation is continuously evolving, manufacturers should start considering proactive compliance measures to stay ahead of changes and avoid costly supply chain disruptions. Failing to do so could mean losing access to the EU market.

CBAM’s Intent & Impact

By setting a fair carbon pricing system between goods that are manufactured both inside the EU and around the world, CBAM -aims to prevent “carbon leakage.” This term describes when businesses move production to or source materials from countries with less restrictive environmental regulations. While this strategy may save money in the short-term, it ultimately undermines the EU’s climate goals. CBAM requires importers to monitor, report, eventually verify, and purchase credits for the embedded emissions of in-scope goods to disincentivize sidestepping environmental protections.

This primary legislative motivation of establishing a price of carbon on these imports was reinforced recently with changes proposed in February 2025 as part of the initial wave of Omnibus simplifications, and which are proceeding quickly. For example, raising the de minimis threshold triggering CBAM importer reporting obligations from 150 Euro of CBAM goods per consignment to 50 tonnes per year reduces the number of importers in scope by 90%, while keeping a price on carbon for 99% of the original emissions in scope.

This, in addition to other simplifications focused on reducing administrative burden for importers and supply chain partners who walk a delicate line between accommodating business while retaining the integrity of its original environmental aspiration. But the most important thing to note for manufacturers around the globe is what didn’t change - that carbon, as a cost of doing business, needs to be accounted for.

U.S. manufacturers exporting to the EU cannot afford to ignore regulations like CBAM, and the data requirements of those in scope for them.  There will be a financial cost associated with CBAM goods being imported, and primary embedded emissions data remains the only way for importers to minimize this new financial burden.   Additionally, noncompliance, incomplete, or inaccurate reports may lead to financial penalties for customers importing into the EU.

Reporting requires primary emissions data directly tied to the production process of imported goods, from manufacturing sites outside of the EU. Previously, companies could use default values to calculate emissions, but the regulation is becoming more complex and stricter as it evolves. In 2026, the transitional phase for CBAM ends, and EU manufacturers will face further requirements, including mandatory registration and reporting as “authorized CBAM declarants.”

Verification requirements are coming, including having to purchase and carry a balance of CBAM Certificates throughout the year, to be surrendered annually. While the percentage of credits an importer needs to purchase is being phased in, by 2034 importers will be responsible for 100% of the embedded emissions associated with their imports.  

The signal to businesses is clear: These requirements aren’t going away, and carbon emissions management will become part of the cost of doing business in more regions across the world. To further complicate compliance efforts, the United Kingdom has announced plans for its own CBAM, which is set to begin on January 1, 2027.

Worldwide Implications

While many manufacturers in the EU and abroad may already track and offset emissions by purchasing credits under the 20-year-old EU Emissions Trading System (ETS), or similar ETSs in their countries, supply chain responses in the transitional phase of CBAM indicate that many others many may need to catch up.

In an analysis of over 150 public corporate sustainability reports, Assent found that only 56% of companies reporting on ESG performance have set emission targets for their value chain (also known as scope 3 emissions). This means nearly half of those companies lack a comprehensive program to manage the type of carbon emissions that CBAM aims to address.

During the 2025 transitional phase, the industries most impacted are cement, iron and steel, aluminum, fertilizers, electricity and hydrogen. However, in 2026, the affected sectors will expand with aspirations to include all goods types covered under the EU ETS by 2030.

We’re also waiting to see what the plans are for including downstream products in the scope of CBAM, something that has been strongly alluded to even within the simplification proposal rationales. For example, a dishwasher would not fall under a CN Code to be identified as a CBAM good, however some parts within that dishwasher, if imported separately, are. This creates a potential disincentive to assemble dishwashers within the EU, and to just imported the finished good. That’s not the goal of CBAM, and as such the EU Commission has indicated that they will be looking to address that in the near future (although how is not clear today).

Companies outside the EU have no legal obligation to provide emissions data for CBAM compliance, and EU importers may have trouble convincing their global suppliers to implement robust-enough emissions tracking programs. However, CBAM makes it significantly easier to work with suppliers that do provide emissions data.

CBAM is changing the global marketplace by tying profits and competitiveness to primary emissions data. Sharing data is the only way for importers to minimize the cost of carbon associated with their CBAM goods and avoid noncompliance fines and supply chain disruptions. Suppliers outside the EU that cannot or choose not to provide emissions data risk losing sales of their exported goods to competitors who can provide that information.

How Manufacturers Can Prepare

To navigate CBAM and other emerging regulations, manufacturers should establish a robust strategy for sharing carbon emissions data across the value chain.

Key steps include:

1. Integrate carbon management into the overall business strategy: Treat emissions not just as an environmental initiative but as a business risk. Involve stakeholders in risk management, procurement, and compliance. Once companies need to purchase CBAM certificates, emissions tracking becomes a key factor in the cost of materials.
2. Engage suppliers in emissions conversations: Initiate discussions with suppliers about emissions. Know where your products are made and whether suppliers can calculate and share emissions data. Start now, as suppliers may need education and time to get an emissions reporting program up and running. Pay particular attention to parts that would be difficult to replace — those suppliers will need to be brought up to speed as soon as possible. While talking with suppliers, ensure they are aligned with the latest practices on CBAM, such as the EU’s accepted methodology for calculating embedded emissions. Keep in mind that these suppliers are not necessarily in scope of CBAM themselves, so supply chain management requires sharing resources and best practices on this topic.
3. Invest in data systems: Set up systems that enable accurate collection, verification, and reporting of emissions data. Such infrastructure will support CBAM compliance and readiness for future regulations requiring transparency. A secure way to share supply chain sustainability data between value chain entities will greatly reduce the cost and time needed to meet CBAM requirements.
4. Monitor regulatory changes globally: Stay informed about sustainability developments beyond the EU, such as the UK’s CBAM plans. Being proactive is key.
5. Consider specialized support: Working with experts in supply chain data can simplify compliance, by offering guidance on best practices and helping to meet regulatory standards. A compliance partner can even help with calculation methodologies, regulatory monitoring, and supplier engagement.

Growing Calls for Environmental Responsibility

CBAM isn’t an anomaly — it’s just the latest example of legislation pushing businesses to practice greater due diligence. Cybersecurity was once considered a niche issue but quickly became a business priority, and — carbon management is following that same trajectory.

Due diligence requirements for supply chain sustainability are ramping up across the board, including new expectations around forced labor, PFAS, and other concerns. Going forward, businesses that work proactively to meet their regulatory obligations will be better positioned not only to avoid risk but to capitalize on opportunities as they arise.

Devin O’Herron is a subject matter expert specializing in supply chain sustainability and responsible sourcing with more than 12 years of sustainability expertise across industries and manufacturers. Focused on providing guidance and expertise on responsible sourcing, environmental and social compliance, and sustainability reporting, Devin helps global manufacturers navigate emerging regulations such as CBAM, mitigate supply chain risks, and leverage sustainability principles to build meaningful programs that deliver bottom-line business value.  He can be reached at devin.oherron@assentcompliance.com