Understanding EU CBAM Obligations: Transitional vs. Definitive Phase

The EU Carbon Border Adjustment Mechanism (CBAM) transitional phase, which began in October 2023, is drawing to a close. With the definitive phase set to begin in January 2026, stakeholders across the supply chain are preparing for a significant shift in obligations and enforcement. In this blog post, we review the key challenges importers and manufacturers encountered during the transitional phase and explain what changes they can expect as CBAM enters its definitive period.

Transitional Phase: A Time to Prepare

The transitional phase has primarily focused on data collection and capacity building. Obligations during this period have centered around reporting requirements without financial liability, as no CBAM certificates needed to be purchased. It served as a learning period not only for importers and non-EU manufacturers but also for the European Commission and the designated National Competent Authorities (NCAs) in each Member State, which were tasked with administrative and enforcement responsibilities.

Importers

Importers have been subject to quarterly CBAM reporting, with the first report due by the end of January 2024, covering imports made in Q4 2023. These reports are required to include several key parameters, although the report structure has undergone small changes during the initial months of implementation. The main parameters importers must report include:

Quantities of imported CBAM goods
Direct and indirect embedded emissions
Information on any carbon prices paid in third countries

Initially, importers had flexibility in the methodology used to calculate embedded emissions. The use of default values—published by the European Commission for each Combined Nomenclature (CN) code—offered a low-barrier entry point for compliance. However, after July 2024, importers were required to transition to more accurate data collection by requesting emissions data from their suppliers, in accordance with one of the following methodologies:

The EU methodology, which has been designed based on the Monitoring, Reporting, and Verification (MRV) system of the EU ETS, or
Equivalent third-country methodologies, provided they ensured a similar level of emission coverage and accuracy to the EU method

As of January 2025, only the EU method was permitted. However, following the announcement of the Commission’s Omnibus reforms in early 2025, some NCAs temporarily reinstated flexibility, allowing the continued use of default values through the end of the transitional period.

Manufacturers

Manufacturers have also been affected by CBAM-related data and reporting demands, although the impact during the early months of the transitional period was relatively limited. This was largely because importers were permitted to use default values published by the European Commission without facing penalties from the NCAs. However, since July 2024, as importers could no longer rely on default values, manufacturers have increasingly received requests for actual emissions data from their clients.

To provide this data, manufacturers had to start setting up monitoring systems to report their emissions in line with the EU method. To support these efforts, the European Commission released several resources, including a voluntary CBAM Communication Template, video tutorials, and a guidance document offering practical instructions. It also launched a section within the CBAM transitional registry dedicated to third-country operators (CBAM O3CI), enabling them to streamline CBAM data sharing with their EU-based customers.

For manufacturers, adapting to these new data demands has involved a significant learning curve. On one hand, CBAM has introduced new requirements in a domain with which many have limited or no prior experience. On the other hand, even those with some experience in carbon accounting have encountered challenges, as the EU method introduces specific technical requirements that differ from widely used international standards such as the GHG Protocol or ISO 14067—particularly in the definition of system boundaries and the level of data granularity required.

In addition, certain types of businesses—such as traders or downstream manufacturers of finished goods—have faced the challenge of depending on upstream suppliers to share emissions data with their own clients, often encountering barriers due to a lack of collaboration across the supply chain. Confidentiality concerns have also been raised, with several companies reluctant to disclose information that could reveal the identity of their suppliers.

Definitive Phase: What’s Changing?

Starting in January 2026, the CBAM will enter its definitive phase, introducing a new set of obligations that go beyond emissions reporting. This includes mandatory verification of actual emissions data and financial responsibilities through the purchase of CBAM certificates.

The definitive phase also marks the beginning of the gradual phase-out of free allowances under the EU Emissions Trading System (EU ETS), which will be fully eliminated by 2034—by which time CBAM’s financial obligations will be fully phased in.

Stricter monitoring and enforcement by NCAs is also expected during this new phase. With the introduction of the new mass-based de minimis threshold, enforcement efforts will concentrate on a smaller number of entities, enabling authorities to enhance their oversight capacity. The threshold is designed to exempt around 90% of currently affected importers—primarily small and medium-sized enterprises (SMEs) and individuals—thereby reducing the administrative burden on low-volume importers.

Importers

Importers will continue to face reporting obligations. However, reporting will shift from a quarterly to an annual basis. Those importing more than 50 tonnes of CBAM goods per year must become authorised CBAM declarants by January 2026 in order to continue importing these goods into the EU. Reporting will continue via a central registry managed by the European Commission—the CBAM registry—which will be the finalised version of the current transitional registry.

Importers will be permitted to resume using default values. However, these values will be deliberately set higher than actual emissions to encourage the collection of more accurate emissions data from suppliers.

Beyond reporting, authorised CBAM declarants will be required to purchase sufficient CBAM certificates to offset the embedded emissions of their imports, as declared in their annual CBAM reports. One CBAM certificate will correspond to one tonne of CO₂ equivalent.

An exception will apply in 2026, during which no certificates will be sold. For that year only, the certificate price will be based on the quarterly average of closing EU ETS prices. Starting in February 2027, the price will be calculated using the weekly average of EU ETS allowance auction closing prices. From that point onward, authorised CBAM declarants will be able to purchase certificates on a rolling basis and must hold a minimum number of certificates by the end of each quarter. This minimum will reflect free allocation adjustments, while the final number of certificates to be surrendered will also account for any applicable carbon price paid in a third country.

Unlike EU ETS allowances, CBAM certificates will not be tradable, and no secondary market will exist. However, authorised CBAM declarants will be entitled to sell back any unused certificates to the competent authority before cancellation. Once cancelled, no reimbursement will be possible.

Manufacturers

Beyond monitoring and reporting emissions data, manufacturers will be required to have their data verified by an independent accredited verifier. If the data is not verified, EU importers will not be allowed to use it and will be forced to rely on more costly default values. As a result, the incentive for manufacturers to perform emissions monitoring and report verified data will be primarily commercial.

Although not mandatory, manufacturers are encouraged to compile a Monitoring Methodology Documentation (MMD)—essentially a CBAM management handbook—to ensure consistency in their monitoring approach over time, support the verification of emissions, and identify areas for improvement. The guiding principle in developing the MMD is that it should be sufficiently clear and transparent for independent parties to understand how the results were derived.

Final Thoughts

After almost two years, the transitional phase—defined by the Commission as a “learning phase” for all—is nearing its end. The new phase of the mechanism is designed to mirror the emissions cost imposed under the EU ETS. While EU operators will pay for their emissions through the purchase and surrender of EU Allowances (EUAs), EU importers of CBAM goods will surrender CBAM certificates that closely reflect the EU ETS, both in terms of Monitoring, Reporting, and Verification (MRV) rules and certificate pricing. From 2034, 100% of the embedded emissions in CBAM goods will be covered by CBAM certificates, and no free allocation will be granted under the EU ETS for these goods.

With the Omnibus reforms expected to be formally endorsed in law soon, the definitive phase will begin with a more limited number of affected entities and a more streamlined, robust mechanism. However, manufacturers selling to the EU—or to companies that produce CBAM goods eventually exported to the EU—should ensure their CBAM data is ready, reportable, and verifiable to avoid losing orders and market share.

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