What is CBAM and why is this important?
The EU’s Carbon Border Adjustment Mechanism (CBAM) is an EU initiative to tackle carbon leakage. The framework applies a tax on carbon-intensive imports respective to their country of origin to match local EU carbon tax rates.
This update clarifies how the EU intends to recognise foreign carbon pricing systems and apply deductions against CBAM obligations. It also highlights increasing alignment between EU and UK CBAM frameworks.
CBAM call for evidence: key findings
A total of 158 stakeholder responses were considered as part of the consultation process. Responses came primarily from:
- Private businesses (50%)
- Trade associations (26%)
- Public authorities (5%)
- NGOs (4%)
- Academia (4%)
The iron and steel sector recorded the highest participation levels, followed by electricity, aluminium, and chemicals. This largely mirrors what we’ve seen so far in terms of impacted sectors and trade disruptions.
The objective of the report is to support the Commission’s finalisation of CBAM Implementing Acts, and highlights efforts to consolidate CBAM regulations ahead of financial implementation next year.
This is a much needed update to the EU’s CBAM framework, bringing obligated businesses one step closer to understanding the true impact of CBAM on their operations.
Carbon price paid abroad: Key draft policy themes
- Carbon Price Scheme Eligibility
Under the draft framework, only carbon pricing systems established through legally binding emission mechanisms will qualify for deductions against CBAM obligations.
Eligible systems must operate as:
- A carbon tax
- A levy or fee
- A greenhouse gas emission trading system (ETS)
Voluntary emission reduction claims and non-binding offset schemes will not qualify. Importers should therefore prioritise suppliers from countries with eligible schemes to minimise their obligations.
Importers claiming effective carbon price deductions will need to provide independently verified evidence demonstrating:
- Actual emissions data
- Carbon prices paid
- Compliance mechanisms used
Verification must be completed by accredited third-party verifiers and is expected to form part of standard CBAM emissions verification processes.
Evidence requirements will apply across all forms of recognised compliance options, including fixed carbon price payments, emission trading systems, and approved carbon credit usage. This doubly reinforces the importance of collecting actual emissions data, setting manufacturers with accurate monitoring systems at a clear advantage.
The Commission also plans to publish a list of default carbon prices for countries operating eligible carbon pricing systems.
These default values are expected to:
- Reduce compliance costs where actual emissions data is unavailable
- Encourage non-EU countries to implement recognised carbon pricing mechanisms
The proposal could significantly reduce financial burdens for importers with limited upstream emissions visibility, although relying entirely on default data and prices will still incur higher obligations. Actual data is key.
- Paris Agreement Article 6 Integration
The draft framework confirms that certain international carbon credits may be accepted under CBAM if they align with Article 6.2 and 6.4 of the Paris Agreement.
However, their use will be capped at 10% of reported emissions to reflect the EU’s attempt to balance:
- International carbon market development
- Environmental integrity
- Incentives for domestic emissions reduction
This represents one of the clearest indications so far that Article 6 mechanisms could play a role in CBAM compliance frameworks. It highlights CBAM’s role beyond a simple border tax and rather as a global incentive to make supply chains greener.
EU/UK CBAM comparison
The table below compares carbon price deduction differences across the EU and UK CBAM frameworks. Understanding these differences is key to avoid unnecessary costs.
|
EU CBAM |
UK CBAM |
| Terminology |
Carbon Price Paid Abroad |
Carbon Price Relief (CPR) |
| Eligibility |
Legally binding carbon tax, levy, fee, or ETS. |
Government administered legally binding carbon pricing scheme. |
| Verification |
EU-accredited third-party verifier. |
GACI-accredited third-party verifier |
| Price conversion |
Annual average exchange rate (EU Commission/Eurostat). |
Relevant reporting period exchange rate (HMRC). |
| Default prices |
Default carbon prices proposed for eligible jurisdictions. |
No default pricing mechanism currently proposed. |
| Carbon credits |
Article 6-aligned credits permitted within thresholds. |
Credits permitted only where pricing is publicly available. |
What does this mean for CBAM compliance?
The latest developments suggest the EU is moving towards a more standardised and enforceable framework for carbon price deductions. The draft also indicates a broader convergence between EU and UK CBAM frameworks.Obligated businesses should begin:
- Forecasting obligations
- Reviewing existing foreign carbon pricing exposure
- Engaging suppliers
How Valpak can help
Our dedicated team of CBAM experts can help streamline CBAM compliance by:
- Identifying CBAM obligated-products
- Engaging suppliers for emissions data
- Accurately forecasting obligations
- Finding new CBAM-aligned suppliers
- End-to-end CBAM compliance
If you found this article helpful, click here to access our website where you can find more information on how we can support CBAM compliance. Attend our upcoming webinar “Q2 CBAM Updates” by clicking here. We will be breaking down the latest regulatory updates on the EU and UK CBAM frameworks.
