What is CBAM?
The EU Carbon Border Adjustment Mechanism: covered sectors, timeline, embedded-emission calculation and what Turkish exporters need to do.
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CBAM at a Glance
CBAM (Carbon Border Adjustment Mechanism) is an EU regulatory system, in force since 2023, requiring carbon-intensive products to pay a carbon price when they enter the EU. Its legal basis is Regulation (EU) 2023/956 with implementing regulation 1773/2023.
CBAM exists to address "carbon leakage": while EU companies pay a carbon price under the ETS, non-EU producers do not. CBAM applies an equivalent charge on the carbon content of imports entering the EU, restoring competitive balance.
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The Six CBAM-Covered Sectors
CBAM's transitional period (2023-2025) and definitive period (2026+) cover the following six sectors:
Iron & Steel
Flats, longs, stainless and certain finished steel products. One of Türkiye's largest exports to the EU.
Aluminium
Primary & secondary aluminium, profiles, plates and sheets. Prioritised due to highly carbon-intensive production.
Cement
Clinker, Portland cement and other cement types. Clinker production (limestone calcination) is highly CO₂-intensive.
Fertilisers
Nitrogen fertilisers (urea, ammonium nitrate) and ammonia. Natural-gas-intensive, hence sizeable carbon footprint.
Hydrogen
All hydrogen production types (grey, blue, green). Carbon intensity differs dramatically by production route.
Electricity
Electricity exported across EU borders. Power sales from neighbouring countries into the EU fall under CBAM.
📋 Future expansion: the European Commission is debating whether to add polymers, chemicals, organic chemistry and downstream metal goods to CBAM before 2030. These sectors should be on watch.
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CBAM Timeline
Transitional Period Started
Importers must submit quarterly CBAM reports. No certificate purchase yet — reporting only. The EU importer is responsible.
Default Values Restricted
From mid-2025, actual (measured) producer values are required for embedded emissions. Default values may be used only when actual data is unavailable.
Definitive Period Begins
EU importers must now purchase CBAM certificates. The certificate price equals the weekly EU ETS average. Declarations become annual.
Phased Transition
CBAM coverage rises in lockstep with the phase-out of EU ETS free allowances: starting at 2.5%, increasing yearly, reaching 100% in 2034. EU and non-EU producers reach full carbon parity.
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What Are Embedded Emissions?
The central concept of CBAM is embedded emissions — the total CO₂ released to the atmosphere during the production of one tonne of a good (e.g. a steel rebar), expressed in tCO₂e / tonne of product.
Direct vs Indirect Embedded Emissions
- Direct: emissions from on-site fuel combustion, limestone calcination and other process sources during production. The plant's Scope 1.
- Indirect: Purchased electricity consumed in production. The plant's Scope 2. For iron & steel, CBAM included indirect emissions starting from 2026.
Precursor Logic
Most CBAM goods involve multi-stage production: ore → DRI → steel (EAF) → rebar. Each intermediate inherits embedded emissions from the previous step. CBAM reports must trace every stage's contribution.
Supplier-Reported vs Default Values
For intermediate products sourced from suppliers (e.g. scrap, DRI), there are two options:
- Supplier-actual (recommended): the supplier shares its own carbon report. Lower value = lower CBAM liability.
- EU default (penalised): if the supplier provides no data, EU country/sector defaults apply — usually higher than actuals, leading to extra cost.
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What Should Turkish Exporters Do?
Türkiye is the EU's 5th largest CBAM-covered exporter. Action plan for Turkish firms in steel, aluminium, cement and fertilisers:
- 1) Calculate embedded emissions per facility. Use the methodology in Implementing Regulation 1773/2023, on a quarterly basis. Beware data gaps — they cannot be backfilled.
- 2) Build a mass-balance structure. CO₂ flow must be traceable through the ore → intermediate → finished-product chain. CBAM verifiers accept ±5% tolerance.
- 3) Gather data from suppliers. For inputs like scrap, DRI and clinker, target supplier-reported values. Defaults are costly — they push CBAM fees on the EU side higher.
- 4) Prepare XML for the EU CBAM Registry. Declarations are submitted to the EU Commission's CBAM Registry in XML format compliant with the 1773/2023 schema. The software stack must be ready before 2026.
- 5) Work with an accredited verifier. From 2026, CBAM reports are accepted only after sign-off by an EU-accredited verification body.
- 6) Plan abatement investments. The CBAM price makes low-emission production financially attractive. Energy efficiency, greening the electricity mix and increased scrap use are the quickest wins.
⚠️ Türkiye-EU ETS Linkage: Türkiye enters the TR-ETS pilot phase in 2026. The EU is considering crediting the carbon price paid by Turkish exporters under TR-ETS against CBAM once TR-ETS is fully operational. Accelerating the domestic ETS rollout is therefore strategically important for Turkish exporters.
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