The Carbon Border Adjustment Mechanism, established by Regulation (EU) 2023/956, is the tool through which the European Union aims to address the risk of production of goods with a high greenhouse gas emission impact being shifted to countries with less stringent regulations.

The principle underlying the CBAM is to assign a cost to the emissions embedded in goods imported into the European Union, thereby helping to create a more level playing field between European producers—who are subject to the EU Emissions Trading System (EU ETS)—and producers located outside the EU. It applies to specific product categories:

• Cement
• Electricity
• Fertilizers
• Cast iron, iron, and steel
• Aluminum
• Chemicals (hydrogen)

These are among the product categories covered by the EU ETS—specifically those susceptible to "carbon leakage," or the risk of production relocation. Any entity importing the aforementioned products (the specific details of which are defined in an annex to the Regulation) into the European Single Market must register with the CBAM registry and become an Authorized Declarant. Each year, the Authorized Declarant must report the greenhouse gas emissions generated by the imported products (so-called "embedded emissions") via the registry and surrender an equivalent quantity of "CBAM certificates."

CBAM certificates will be sold by the European Union via auctions, with a starting price based on the average trading value of EU ETS allowances during the period preceding the auction. Proceeds from the sale of CBAM certificates will be allocated to projects aimed at combating climate change.

Calculating embedded emissions

The Authorized Declarant, who is required to report the emissions associated with their imports, must convert the quantity of imported products into the corresponding amount of CO2. There are two ways to do this:

• Use default values. Regulation 2025/2621 contains a set of values that allow embedded emissions to be calculated based on the product and the country of production. No independent verification is required. This is the simplest solution. The trade-off is that the default values are “conservative”—meaning they are very high. Those who use them face higher costs than those who use actual emission values.
• Use actual values provided by producers. In this case, the emissions report must be accompanied by a Verification Statement issued by a verifier accredited by an accreditation body in an EU Member State.

This requirement applies throughout the supply chain due to what the Regulation terms “precursors”—i.e., the raw materials used that also fall within the scope of the CBAM Regulation.

Unlike the EU ETS, CBAM applies to finished products as well. However, emissions linked to non-CBAM products do not need to be taken into account.

ICMQ is currently undergoing the accreditation process.