09/09/2026
Category
GRC (Governance, Risk, and Compliance)
The EU Carbon Border Adjustment Mechanism turns embedded carbon into a direct export cost for Asian manufacturers. During the transitional phase the obligation is reporting, but from 2026 importers pay for the carbon in every tonne of steel, aluminium, cement, fertiliser, or hydrogen they bring into Europe. This guide explains how CBAM works, which sectors face exposure, how to calculate embedded emissions, and how to prepare carbon data systems before the definitive regime starts charging. —
The European Union’s Carbon Border Adjustment Mechanism, commonly referred to as CBAM, represents one of the most significant shifts in international trade policy in a generation. For manufacturers across Asia who export to European markets, understanding CBAM is no longer optional. It is a commercial imperative. CBAM is a regulation designed to place a fair carbon price on imports of certain goods into the EU. Its purpose is straightforward: to ensure that carbon-intensive products imported into the EU face the same carbon costs as equivalent products manufactured within the bloc. Under the EU Emissions Trading System (EU ETS), European manufacturers already pay for the carbon emissions they generate. CBAM extends that principle to imports, closing the gap that previously allowed foreign producers to sell into the EU without bearing equivalent carbon costs. The mechanism entered its transitional phase on 1 October 2023. During this period, which runs until 31 December 2025, the focus is on reporting. Importers of covered goods must submit quarterly declarations detailing the embedded carbon emissions in their imports. No financial adjustment is required during this phase. However, from 1 January 2026, the full CBAM system takes effect. Importers will be required to purchase and surrender CBAM certificates corresponding to the embedded emissions in their imports, effectively paying the EU carbon price for those emissions. For manufacturers in Singapore, Taiwan, Thailand, Indonesia, and Malaysia, this has immediate and tangible implications. These countries are significant exporters of the goods covered by CBAM, including iron, steel, aluminium, cement, and fertilisers. While the formal compliance obligation falls on the EU-based importer, the commercial reality is that the cost of CBAM certificates will flow back through the supply chain. Your EU customers will increasingly demand detailed, verified carbon data from you. Those who can provide accurate embedded carbon figures will be in a stronger negotiating position. Those who cannot will face higher effective costs and, in some cases, the risk of losing market access. The impact is particularly pronounced for Operations Directors and CFOs in carbon-intensive industries. CBAM introduces a new variable into export pricing and margin calculations. If your embedded carbon intensity is high relative to the EU average, the CBAM cost attributed to your products will be correspondingly higher. This affects competitiveness, profitability, and the strategic calculus of whether and how to serve EU markets. The practical takeaway is clear: the transition period is not a grace period. It is a preparation window. The companies that invest in measuring and reducing their embedded carbon now will be materially better positioned when the financial obligations begin in 2026. The companies that wait will face a steeper, more costly adjustment.
CBAM currently applies to six specific categories of goods. Understanding whether your products fall within these categories is the first step in assessing your exposure. The covered sectors are:
For Asian manufacturers, the most immediately relevant sectors are iron and steel, aluminium, cement, and fertilisers. These industries form a substantial portion of export volumes from countries such as Taiwan, Thailand, Indonesia, and Malaysia to the European Union. It is worth noting that the European Commission has signalled its intention to expand the scope of CBAM over time. Additional sectors, including organic chemicals, polymers, and downstream products such as machinery and equipment, are under consideration for future inclusion. For forward-looking manufacturers, even those whose current product range is not yet covered, the trajectory of CBAM suggests that broader coverage is likely. Building robust carbon measurement capabilities now positions your organisation to respond to scope expansion without disruption. The sectoral focus also has implications for competitive dynamics. Within each covered sector, manufacturers with lower embedded carbon intensity will face lower CBAM costs and therefore enjoy a competitive advantage. This creates a clear incentive to invest in decarbonisation, not only for environmental reasons but for commercial ones. A steel producer in Taiwan that has invested in electric arc furnace technology powered by renewables will have significantly lower embedded emissions than one relying on coal-based blast furnaces. Under CBAM, that difference translates directly into a cost advantage in the EU market.
| Phase | Period | Obligation | Financial Impact |
|---|---|---|---|
| Transitional | Oct 2023 to 2025 | Quarterly embedded emissions reports | None yet, but defaults punish missing data |
| Definitive | 2026 onward | Authorised declarant buys certificates | Cost per tonne of embedded carbon above benchmark |
| Free allocation phase-out | 2026 to 2034 | EU ETS free allowances taper | Coverage widens, costs rise progressively |
Embedded carbon is the central concept of CBAM. It refers to the total greenhouse gas emissions released during the production of a specific good, expressed in tonnes of CO2 equivalent per tonne of product. Understanding how embedded carbon is calculated, and how to generate accurate figures for your products, is essential for CBAM compliance and for managing your competitive position. During the transitional phase, the EU has provided default values for the embedded emissions of covered goods. These are average emission intensities derived from EU production data, and they can be used by importers when actual emissions data is not available. However, default values tend to be conservative, often higher than the actual emissions of the most efficient producers. This means that relying on defaults is likely to result in a higher CBAM cost than necessary. From January 2026, the use of actual emissions becomes the standard. Importers must use verified actual emissions data for the goods they import. This shift makes the quality and accuracy of your carbon data a direct commercial factor. If you can demonstrate that your embedded emissions are genuinely lower than the default values, your EU customers will benefit, and your products become more attractive. The calculation of embedded carbon follows a methodological framework that aligns with the GHG Protocol and ISO 14064 principles. It encompasses:
The calculation methodology requires careful attention to system boundaries. You must define which production stages, processes, and emission sources are included. The EU has established detailed rules for each product category, specifying the calculation method, the emission sources to be included, and the applicable default values. For many Asian manufacturers, the challenge lies not in the complexity of the methodology itself, but in the availability and quality of the underlying data. Calculating embedded carbon requires granular data on fuel consumption, electricity use, process parameters, and material inputs at the production facility level. If your data systems are not designed to capture this information at the required level of detail, the gap between estimated and actual emissions can be significant. This is where investing in proper carbon measurement infrastructure pays dividends. Real-time emissions monitoring systems, such as Evercomm’s NxOps, capture operational data directly from IoT sensors deployed on production equipment. This data flows into carbon accounting platforms, such as NxMap, where it is processed against recognised methodologies to produce embedded carbon calculations that are accurate, traceable, and audit-ready. By replacing estimates and proxies with measured data, manufacturers can achieve up to 90% improvement in data authenticity, ensuring that their reported embedded emissions genuinely reflect their production performance.
To see how Evercomm helps industrial enterprises measure, reduce, and finance their transition to sustainable operations, visit https://evercomm.io.
The EU Carbon Border Adjustment Mechanism (CBAM) is a regulation that places a carbon price on imports of certain carbon-intensive goods into the European Union. It is designed to ensure that imported products face the same carbon costs as those produced within the EU under the EU Emissions Trading System (EU ETS). CBAM currently covers iron and steel, aluminium, cement, fertilisers, electricity, and hydrogen. During the transitional phase from October 2023 to December 2025, importers only need to report embedded emissions. From January 2026, CBAM certificates must be purchased to cover the carbon cost of embedded emissions.
Yes, CBAM directly affects manufacturers in Asia who export covered goods to the EU. Countries including Singapore, Taiwan, Thailand, Indonesia, and Malaysia are significant exporters of steel, aluminium, cement, and fertilisers to European markets. Even if the regulation applies to EU-based importers, the cost of CBAM certificates will ultimately flow back to Asian manufacturers through pricing pressure and contractual obligations. Manufacturers who can demonstrate lower embedded carbon emissions will be at a competitive advantage.
During the transitional phase (October 2023 to December 2025), CBAM quarterly reports are due within one month after the end of each quarter. The first report covered imports from October to December 2023 and was due by 31 January 2024. From January 2026, the full CBAM system requires annual CBAM declarations, with the first full declaration due by 31 May 2026 for emissions embedded in imports during 2026. Importers must also purchase and surrender CBAM certificates corresponding to declared embedded emissions.
Embedded carbon for CBAM purposes refers to the total direct greenhouse gas emissions released during the production of imported goods, measured in tonnes of CO2 equivalent per tonne of product. During the transitional phase, declarants can use default values provided by the EU. From January 2026, actual emissions calculated using verified methodologies are required. Actual emissions are calculated by measuring direct emissions from production processes, including fuel combustion and process emissions, using standardised emission factors and methodology aligned with the GHG Protocol.
Asian manufacturers can reduce CBAM costs by lowering the embedded carbon in their exported products. Strategies include switching to lower-carbon energy sources, improving energy efficiency, upgrading production processes, and investing in carbon capture or renewable energy. The most effective approach is to implement real-time emissions monitoring systems that provide accurate, verified data on actual emissions. Using actual verified emissions rather than default values can significantly reduce the CBAM certificates required, as manufacturers that have decarbonised their processes can demonstrate lower embedded carbon.
The EU ETS is the EU’s cap-and-trade system that places a carbon price on emissions from industries operating within the European Union. CBAM extends a comparable carbon price to imported goods from outside the EU. The CBAM certificate price is directly linked to the weekly average EU ETS allowance price. The purpose of CBAM is to prevent carbon leakage, which occurs when companies relocate production to countries with weaker climate policies to avoid EU carbon costs. Together, CBAM and EU ETS ensure a level playing field for carbon pricing.
The formal CBAM registration and compliance obligation falls on the EU-based importer, not the foreign manufacturer. However, as an Asian manufacturer exporting CBAM-covered goods to the EU, your EU customers will require you to provide detailed embedded carbon data. In practice, this means you need to measure, verify, and report your product-level emissions to satisfy your importers’ CBAM obligations. Manufacturers who proactively invest in emissions measurement and verification will be better positioned to maintain EU market access and negotiate favourable terms.
The transitional reporting phase has run since October 2023 without financial liability. The definitive regime begins in 2026, when authorised CBAM declarants purchase CBAM certificates priced against EU ETS allowances to cover embedded emissions above free-allocation benchmarks. Exporters who cannot evidence actual emissions are priced at punitive default values.
The initial scope covers cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen, including many downstream products in those families. The EU reviews scope periodically with expansion expected. Manufacturers in covered chains should assume future inclusion and build data readiness early.
Actual data is the first lever: verified installation-specific emissions often sit well below default values, immediately cutting certificate exposure. Beyond that, decarbonisation of the covered production process, renewable electricity procurement, and energy efficiency lower embedded emissions per tonne. A costed abatement plan turns CBAM from a tax into a competitive wedge against higher-carbon rivals.
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