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 leveling 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 equalizing the carbon costs between domestic and imported goods, CBAM aims to incentivize 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 mirrors 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, verified by an accredited third party, and manage the purchase and surrender of CBAM certificates on a regular basis.
• Non-EU operators, or producers, are asked to calculate the embedded greenhouse gas emissions in their products and providing this data to EU importers, verified by an accredited third party.

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

Who is affected by the EU CBAM

Primary impacted groups:

• EU declarants: Companies in the EU that import CBAM-covered goods and must report emissions and purchase certificates. CBAM applies to companies importing 50 tonnes per year of CBAM goods (excluding electricity & hydrogen).
• Non-EU operators: Manufacturers outside the EU exporting to Europe. They need to provide verified emissions data or risk restricted market access.

Impacted sectors:

• Cement
• Iron and steel
• Aluminum
• Fertilizers
• 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.

CBAM Definitive Phase

We are now in the definitive phase, which started January 1, 2026. CBAM certificates must be purchase and surrendered annually to reflect the verified embedded emissions in imported goods. However, several key updates affect the timeline and scope:

• You can choose between EU default values or actual supplier data. While there’s no legal obligation to use supplier data, there is a strong economic incentive: default values include a mark-up, which means you’ll need to purchase more certificates compared to using actual supplier data.
• Reporting becomes annual: Reporting shifts from quarterly to yearly, with the first annual report due:
  • September 2027
• Third-party verification is mandatory: Declarants must get their reports verified by an independent, accredited third party in order to achieve compliance, and operators must get their emissions data verified by a third party and share proof thereof with their customers (declarants).
• Certificate purchase: Certificate purchases start in February 2027 for embedded carbon recorded in 2026 and need to be surrendered by September 2027. CBAM certificates are priced quarterly with the quarterly average set by the EU during 2026 and priced weekly coupled to ETS price starting 2027.
• Ongoing certificate balance requirements: Importers must maintain a balance of CBAM certificates equal to at least 50% of the embedded emissions at the end of each quarter. 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 first scope expansion is planned for 2028, when complex downstream goods with high steel and aluminum content will also be covered, including large domestic household appliances like washing machines or refrigerators, but also engines and engine parts, cables, cranes, lifts, and construction equipment, industrial robots, pumps, certain medical instruments, or metal-based furniture.

These changes emphasize 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 decarbonization.

1. Understand scope and materiality

Start by identifying whether your organization is importing goods that fall under the current CBAM coverage—cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen—with more sectors specific finished goods,such as washing machines to be added over time. If so, determine if you exceed the import threshold of 50 tons of cumulative CBAM goods (except electricity and hydrogen) per year per importer.

2. Build a regulatory data foundation

CBAM compliance depends on accurate, standardized, 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 customs and ERP 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, auditability, and financial integration

Manual reporting may suffice in the short term, but it's not sustainable—especially if you have complex operations and supply chains and high volume of transactions, and regulatory scope increases. Automation helps you scale, minimize errors, reduce costs, and ensure readiness for audits. Financial integration improves visibility into CBAM-related cost impacts, enabling more accurate forecasting, planning for liquidity requirements, and incorporation into product costing. Look for tools that:

• Integrate with core business systems.
• Offer baked-in auditability.
• Enable automation.
• Ensure traceability of emissions and cost data.
• Support modeling and monitoring of CBAM exposure.

5. Align compliance with decarbonization strategy

CBAM isn’t just a reporting challenge—it’s a decarbonization 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

Keep abreast of changes and updates to the CBAM regulation and adjust compliance strategies accordingly. 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 offers an integrated, end-to-end CBAM solution that connects carbon data with financial processes within core ERP workflows. Built on SAP Sustainability Footprint Management and SAP Green Ledger, this approach enables companies to move beyond fragmented tools and manage CBAM as a continuous, auditable process.

SAP supports CBAM across the full lifecycle:

1. Data foundation and emissions calculation
   SAP Sustainability Footprint Management strengthens the underlying data foundation with customs data, including import records and CN code classifications from SAP Global Trade Services and other trade systems. It then uses ERP and supplier emissions data to calculate embedded emissions and determine certificate requirements.
2. Streamlined declarant reporting
   SAP Sustainability Footprint Management will enable standardized, auditable workflows for CBAM reporting and help organizations generate compliant declarations.
3. Carbon and financial accounting of CBAM certificates
   SAP Green Ledger connects carbon and financial accounting by tracking CBAM certificates as assets and liabilities, in line with International Accounting Standards, and enabling audit-ready reporting, valuation, and financial postings.
4. Planning, forecasting, and cost management
   By linking carbon data to financial processes, SAP allows organizations to forecast CBAM costs, model financial impact, and manage exposure at the product level.
5. Decarbonization for compliance and competitiveness
   SAP Sustainability solutions such as SAP Sustainability Control Tower, Sustainability Footprint Management, SAP Sustainability Data Exchange, and SAP Green Ledger enable companies to reduce emissions and CBAM liability, lower compliance costs, and strengthen their position with EU customers.

An Autonomous Enterprise embeds sustainability-specific regulatory knowledge, data models, and process logic directly into core business processes. Sustainability is no longer a separate reporting activity but rather a built-in constraint and driver of decisions across finance, supply chain, procurement, product, and operations.

CBAM offers a powerful example of this shift. Organizations do not react after that fact. They calculate exposure continuously, manage financial impact, and optimize operations in real time. This transforms compliance into a source of financial resilience and competitive advantage, with trusted governance built in.

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