EU CBAM: most businesses will be out of scope

The EU’s Carbon Border Adjustment Mechanism (CBAM) is due to become operational on 1 January 2026. Under the EU CBAM, a levy will be imposed on certain imports from other countries where the goods have been produced via more carbon-intensive means. It will apply to goods and materials such as iron and steel, cement, fertilisers and aluminium, as well as certain imports of electricity and hydrogen, depending on where they are generated or sourced from.

The mechanism is designed to ensure equivalent carbon costs between imported and EU produced goods covered by EU CBAM, ensuring the latter are not undercut by foreign competitors that do not face equivalent carbon costs in their home jurisdictions.

Earlier this month, a new regulation targeted at “simplifying and strengthening” the EU CBAM came into force. Arguably, the biggest change arises from the introduction of a new ‘de minimis exemption’.

In a statement, the European Commission Directorate-General for Taxation and Customs Union summarised the main changes: “[The] key element of the package is a new exemption threshold of 50 tonnes for CBAM goods. Companies importing less than 50 tonnes of goods subject to CBAM annually will be exempt from CBAM obligations. This measure is expected to exempt approximately 182,000 importers, mostly SMEs and individuals, while still covering over 99% of emissions in scope.”

Coupled with this, the regulation strengthens protection against circumvention of EU CBAM through the splitting of imports into amounts which are under the de minimis level.

The Directorate-General added: “For those importers that remain in the CBAM scope, the adjustments will facilitate compliance with the reporting requirements and simplify the authorisation of declarants, the calculation of emissions, and compliance with the financial liability. The changes will reduce the regulatory and administrative burdens and compliance costs, particularly benefiting SMEs. In addition, as from 2027, the Commission may also, for third countries where carbon pricing rules are in place, determine and make available, in the CBAM registry, the default carbon prices for those third countries and publish the methodology for their calculation.”

The UK is set to operate its own CBAM regime from 1 January 2027. A trade agreement reached between the EU and UK earlier this year provides for potential mutual exemptions of imports from the respect CBAM regimes, but final details on this have still to be announced.

Siobhan Cross of Pinsent Masons, who specialises in supporting businesses in addressing the impact and effects of climate change, said the CBAM regimes may have an impact on the availability and price of construction materials and, by extension, infrastructure and real estate development costs in the EU.

“The EU CBAM provides a financial incentive for developers to choose low carbon products and apply circular economy principles to avoid the carbon costs of higher carbon new goods. This adds to the existing drivers for such action coming from corporate net zero targets and from increasing regulation, such as the recast EU Energy performance of Buildings Directive, and should encourage scale up of low carbon products and circularity in key building materials,” she said.

Trade law specialist Dr Totis Kotsonis, also of Pinsent Masons, said the changes were effectively introduced in response to well-documented criticisms of the original arrangements, which were that they would create additional red tape without adding substantive value to the CBAM’s aims.

“It is also notable that back in August 2025, the joint US-EU statement on an agreement on trade referred to US concerns in relation to the treatment of US small and medium-sized businesses under the CBAM, and noted the European Commission's commitment to work to provide additional flexibilities in the CBAM implementation, over and above the de minimis exception.  Accordingly, we should expect further changes in due course,” Kotsonis said.

“Separately, it is worth noting that until such time as the UK implements its own domestic CBAM which is aligned with that of the EU, UK exporters of CBAM-covered products will remain exposed and would need to take steps to ensure compliance,” he said.

Tax expert Penny Simmons of Pinsent Masons added: “Changes to simplify the operation of the EU CBAM are welcome, to ease the burden of an already complicated global tax system. However, if the UK is not explicitly exempted from the EU CBAM it will be important for the UK to consider whether parallel changes are required to the UK CBAM to ensure that the two systems do not diverge too far from each other.”