Why the EU introduced CBAM

The EU’s CBAM is part of the EU's wider net climate ambitions and the EU Green Deal. By imposing a carbon price on imports of certain energy-intensive goods, CBAM seeks to ensure that imported products are subject to the same carbon costs as those produced within the EU and subject to carbon pricing under the EU Emissions Trading System (ETS), thereby levelling the playing field for EU and non-EU producers and encouraging cleaner production methods worldwide.

The primary goal of CBAM is to prevent carbon leakage, which occurs when companies relocate production to countries with less stringent environmental regulations, undermining global climate objectives. By equalising the carbon costs between domestic and imported goods, CBAM aims to incentivise greener manufacturing practices globally, support the EU's ambitious climate targets, and prevent a competitive disadvantage for European companies.

How the EU CBAM works

CBAM operates by requiring importers to report the emissions embedded in their imported CBAM goods, then purchase and surrender carbon certificates corresponding to the embedded emissions in their imported goods. The price of these certificates reflects the carbon price that would have been paid had the goods been produced under the EU's ETS. This mechanism ensures that imported products bear comparable carbon costs to those produced within the EU, promoting fair competition and encouraging emission reductions.

In practice, CBAM assigns responsibilities to both parties involved in the trade:

• EU declarants must report embedded emissions for each import and manage the purchase and surrender of CBAM certificates on a regular basis.
• Non-EU operators, or producers, are responsible for calculating the embedded greenhouse gas emissions in their products and providing this data to EU importers, verified by an accredited third party (as of 2026).

When verified emissions are not available, declarants must use default values provided by the EU, set conservatively to incentivise accurate reporting.

Who is affected by the EU CBAM

Primary affected groups:

• EU declarants: Companies in the EU that import CBAM-covered goods and must report emissions and purchase certificates.
• Non-EU operators: Manufacturers outside the EU exporting to Europe. They need to provide verified emissions data or risk restricted market access.

Affected sectors:

• Cement
• Iron and steel
• Aluminium
• Fertilisers
• Electricity
• Hydrogen

These sectors were selected based on their high emissions intensity and risk of carbon leakage and more will be added over time until 2034.

Updated regulatory scope:

Under the EU Omnibus proposal, compliance thresholds have shifted from a monetary value to emissions volume and product quantity. If approved, CBAM then will apply to companies importing either:

• More than 50 tonnes of CO₂ embedded in CBAM goods annually, or
• More than 100 tonnes of CBAM goods per year

This replaces the previous threshold of €150 in goods value. The change simplifies compliance and exempts smaller importers—reducing the number of companies affected by about 90%, whilst still covering approximately 99% of the emissions under CBAM.

CBAM reporting requirements and timeline

CBAM is being rolled out in phases to allow businesses time to adapt to new requirements. Each phase introduces progressively stricter obligations on both reporting and financial compliance.

Transitional phase (1 October 2023 – 31 December 2025)

During this period, EU importers (declarants) are required to submit quarterly reports detailing the embedded greenhouse gas emissions of their imported CBAM goods. No financial transactions are required yet, but accurate and timely reporting is compulsory.

This phase is designed to give companies time to prepare for the definitive implementation by building reporting systems, engaging suppliers, and ensuring emissions data is available and verifiable.

Definitive phase (starting 1 January 2026)

In the definitive phase, CBAM certificates must be purchased and surrendered annually to reflect the verified embedded emissions in imported goods. However, several key updates affect the timetable and scope:

• Use of default values is limited: From July 2024, declarants may only use default or estimated values for up to 20% of the total embedded emissions in complex goods—products that incorporate other CBAM-covered goods as inputs.

• Reporting becomes annual: Reporting shifts from quarterly to yearly, with the first annual report due:

  • 31 May 2027, for reporting year 2026
  • 31 August 2027, if the proposed EU Omnibus regulation is approved

• Third-party verification is mandatory: All emissions data must be verified by an independent, accredited third party to ensure accuracy and compliance.

• Certificate surrender may be delayed: If the EU Omnibus proposal is approved, the obligation to purchase and surrender CBAM certificates will begin on 1 January 2027, instead of in 2026.

• Ongoing certificate balance requirements: Importers must maintain a balance of CBAM certificates equal to at least 80% of the embedded emissions at the end of each quarter (or 50% if Omnibus is approved). This requirement ensures that certificates are purchased and managed on a regular, quarterly basis—discouraging delays or end-of-year stockpiling.

• Scope expansion expected: The list of CBAM-covered goods (defined by CN codes) will expand over time, with more sectors and product types expected to be added by the European Commission.

These changes emphasise the need for reliable emissions data, proactive supplier engagement, and integrated systems to support verification, tracking, and financial compliance.

How can businesses prepare for CBAM compliance

Preparing for CBAM goes beyond regulatory box-checking—it’s a chance to create long-term value through better data, stronger supplier relationships, and accelerated decarbonisation. While the EU has extended some deadlines and narrowed the scope to larger importers, the need for action remains. To navigate CBAM effectively, businesses should:

1. Understand scope and materiality

Start by identifying whether your organisation is importing goods that fall under the current CBAM coverage—cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen—with more sectors to be added over time. If so, determine if you exceed the import threshold.

2. Establish a regulatory data foundation

CBAM compliance depends on accurate, standardised, and auditable emissions data. Most companies are not starting from scratch—but few have end-to-end visibility or consistency across systems and supply chains. Establish a data foundation that draws from ERP, procurement, logistics, and sustainability systems to ensure emissions can be tracked and reported at the product and shipment level. For a broader framework on preparing sustainability data, explore the ESG Reporting Guide.

3. Engage and educate suppliers

Collaborate with suppliers to gather accurate data on embedded emissions and encourage the adoption of cleaner technologies.​ Suppliers outside the EU must be able to calculate and share verified, embedded emissions in line with the EU method. That means:

• Communicating the importance and urgency of CBAM requirements
• Offering tools or support to calculate and verify emissions
• Updating procurement policies and contracts to require emissions transparency

4. Invest in tools for automation and auditability

Manual reporting may suffice in the short term, but it's not sustainable—especially as regulatory complexity increases. Automation helps minimise errors, reduce costs, and ensure readiness for audits. Look for tools that:

• Integrate with core business systems.
• Offer built-in auditability.
• Enable automation.

5. Align compliance with decarbonisation strategy

CBAM isn’t just a reporting challenge—it’s a decarbonisation opportunity. Businesses that reduce the embedded emissions in their products can lower certificate costs and gain a competitive edge in the EU market.

This is particularly important for non-EU operators, who risk losing market access if they can’t provide verified low-carbon credentials. Demonstrating emissions reductions can become a differentiator and open doors to new buyer relationships.

6. Remain agile and stay informed

Stay informed about evolving CBAM regulations and adjust compliance strategies accordingly. The recent EU Omnibus proposal suggests adjusted timelines, de minimis thresholds, and more. More changes may come depending on whether the proposal is accepted or not. Maintaining compliance requires staying current with policy updates and being able to quickly adapt systems, processes, and data strategies.

How SAP supports CBAM compliance

Navigating CBAM isn’t just about meeting regulatory demands—it’s about building a foundation for long-term sustainability, financial accountability, and market competitiveness. SAP’s suite of sustainability tools is designed to help companies do all three.

Whether you're a declarant responsible for emissions reporting or an operator looking to gain a competitive edge by offering low-carbon products, SAP solutions help simplify complexity and unlock value at every stage.

Benefits for SAP customers

SAP has a deeply integrated, ERP-centric approach. This means customers using SAP S/4HANA can benefit from existing master data, transaction records, and native integration with sustainability tools. The result is a more resilient compliance strategy and a lower total cost of ownership. SAP offers solutions to support:

• Streamlined declarant reporting
  SAP Green Token supports CBAM declarant reporting by capturing supplier emissions data and enabling standardised, auditable reporting workflows. This helps companies comply with EU mandates whilst building stronger, more transparent supply chains.
• Automated financial management of CBAM certificates roadmap
  SAP Green Ledger handles the financial side of CBAM, and will allow organisations to manage their certificate repository and ensure financial accounting of CBAM certificated according to US GAAP and IFRS—providing clarity, control, and compliance with international financial accounting standards—upon availability at the end of 2025
• Decarbonisation for compliance and competitiveness
  Applications like SAP Sustainability Control Tower, SAP Sustainability Footprint Management, SAP Green Ledger, and SAP Sustainability Data Exchange empower businesses to reduce their carbon emissions and hence their CBAM liability. This lowers the cost of CBAM compliance, offers an opportunity to reap business benefits like green premiums, and positions operators as more attractive partners for EU buyers—preserving or expanding market access.

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