CBAM (MACF): the complete guide for exposed European producers

In heavy industries - steel, aluminium, cement - two industrial approaches coexist. On one side, historically carbon-intensive, highly exposed processes: blast furnaces, the clinker route, electrolysis on a carbon-intensive grid. On the other, routes that are low-carbon by design: hydrogen direct reduction, electric furnaces using scrap, decarbonised energy. CBAM and the accompanying ETS reform do not treat these two worlds in the same way, and this is precisely what makes it a strategic issue rather than a simple compliance item. Strengthening this mechanism is explicitly among the directions set by SNBC 3 adopted in July 2026.

Most CBAM content addresses importers. This guide takes the opposite angle: a European producer in a covered sector, whose carbon cost equation changes between 2026 and 2034, and whose emissions data become a commercial asset as well as a requirement. If you are new to the subject, start instead with our simple explanation: what is CBAM?

1What actually changes on 1 January 2026

CBAM had a transitional phase from 1 October 2023 to 31 December 2025: quarterly reporting of imported emissions, without payment. This phase has ended. Since 1 January 2026, it has been in its definitive phase: the mechanism now has a price.

In practice, the European importer of covered goods must become an authorised CBAM declarant, declare the embedded emissions of its imports, and surrender CBAM certificates priced according to the ETS market. However, the operational timetable was relaxed by Omnibus Regulation (EU) 2025/2083, which entered into force on 20 October 2025: certificate purchases and surrender only start on 1 February 2027 (for 2026 emissions), and the first annual declaration is due in September 2027.

The omnibus also introduced a de minimis threshold of 50 net tonnes imported per year, replacing the former exemption of 150 euros per consignment. The result: around 90% of importers are exempt, while 99% of emissions remain within scope. Hydrogen and electricity remain outside this mass threshold.

2Sectors within scope

CBAM currently covers six sectors, chosen for their carbon intensity and leakage risk: iron and steel, aluminium, cement, fertilisers, electricity and hydrogen. Around 570 product codes in total, including precursors such as clinker, ferromanganese, nitric acid and unwrought aluminium. These industries alone account for nearly 45% of emissions from the industrial sectors covered by the ETS.

If you produce in one of these sectors, three situations can affect you simultaneously, and often do: you lose your free ETS allowances (the central issue, addressed below); your European customers request your product carbon data for their own CBAM or ESRS declarations; and if you import covered inputs yourself (scrap, alumina, clinker, slabs), you also become a CBAM declarant on that basis.

The scope is already being expanded. On 17 December 2025, the Commission proposed extending CBAM to around 180 downstream products from the steel and aluminium industries - machinery, hardware, automotive components, household appliances, construction equipment - and a report is expected on adding polymers and chemicals. The direct consequence: it is no longer only primary producers that are targeted, but also processors and manufacturers incorporating steel or aluminium into their products. An exposed business therefore benefits from thinking well beyond the 2026 list.

3The end of free ETS allowances between 2026 and 2034

Since the ETS began, sectors exposed to carbon leakage risk have received free allowances: a share of their emissions is not charged, to preserve their competitiveness against non-European competitors. CBAM is designed to replace this protection: it charges carbon on imports at the border, which is intended to allow free allowances to be withdrawn without reopening the door to carbon leakage.

The direct consequence for a producer: free allowances disappear in stages between 2026 and 2034. The pace is not linear. The CBAM factor determines the share of free allocation retained (97.5% in 2026, 51.5% in 2030, no free allowances from 2034); the share removed therefore follows this pathway:

• 2026: 2.5% of free allocation removed
• 2027: 5% - 2028: 10% - 2029: 22.5%
• 2030: 48.5% - the steepest jump, with the reduction more than doubling in a year
• 2031: 61% - 2032: 73.5% - 2033: 86%
• 2034: 100% - no free allowances remaining, all carbon is charged

The strategic turning point lies between 2029 and 2030: the reduction rises from 22.5% to 48.5% (the CBAM factor falls from 77.5% to 51.5%). This is the year when a blast-furnace steel site's carbon exposure stops being a marginal cost item and becomes a determinant of margin. A producer that has not decarbonised its production route by then bears most of the bill in the second half of the decade, exactly when the ETS tonne price is expected to rise.

4Your exports outside the EU are not protected

CBAM protects the European internal market: an importer of Chinese steel now pays a carbon cost aligned with that of the European producer. But the scheme says nothing about exports. A European steelmaker selling outside the EU loses its free allowances without benefiting from any adjustment at the destination country's border. Its exported tonne bears a carbon cost that its American, Turkish or Asian competitors do not.

This is the export rebates debate, on which the Commission is working. A modest initial envelope of around 70 million euros is being discussed for 2026, but the mechanism faces a barrier: compatibility with WTO rules. An overly generous export rebate could be reclassified as a disguised subsidy. The issue is unresolved, and for an export-oriented manufacturer, it is a regulatory uncertainty to include in any long-term investment decision.

5How embedded carbon is calculated

The embedded carbon (embedded emissions) of a good covers the direct emissions from its production and, for certain products, indirect emissions linked to the electricity consumed. The methodology is defined by Implementing Regulation (EU) 2025/2547, which specifies three approaches for direct emissions: the calculation-based approach (activity flows × emission factors), the mass balance approach and the measurement-based approach (direct measurement of gas concentrations and flow rates).

Indirect emissions rely on an emission factor for the electricity consumed, expressed in tCO2e per MWh. Depending on the products, the country's grid factor, the factor from a power purchase agreement (PPA) or that of on-site generation is used. The electricity factor choice is not neutral: it can change the result by several tens of per cent.

For steel, the production route determines the result. A conventional blast furnace (BF/BOF) has a carbon intensity vastly different from an electric furnace fed with scrap (scrap-EAF) or hydrogen direct reduction (DRI-EAF). CBAM reference values (benchmarks) differ by route, meaning that a producer that is low-carbon by design has a measurable competitive advantage that can be substantiated - provided it knows how to document it.

6Methodological pitfalls that cost money

Default values and their punitive additional cost

When a declarant has no verified actual data, it applies default values published by the Commission (Implementing Regulation (EU) 2025/2621 of 31 December 2025). These values are deliberately conservative and carry an increasing mark-up: 10% in 2026, 20% in 2027, 30% from 2028 for steel, aluminium and cement (only 1% for fertilisers, given the difficulty of obtaining primary data in these chains).

Allocation between products and co-products

A site rarely produces a single good. Dividing an installation's emissions between its different products and co-products (allocation) is one of a declaration's most technical and most disputable points. Poorly defined allocation can overburden a flagship product and lighten a by-product, directly affecting your customers' CBAM bill - and therefore your commercial attractiveness.

The electricity factor

For electricity-intensive industries, the choice and justification of the electricity emission factor are decisive. A renewable PPA that is correctly contracted and documented can significantly reduce declared indirect emissions - but traceability must be impeccable, or the much less favourable grid factor will apply again.

7Protecting yourself: an exposed producer's roadmap

The good news is that actions reducing your CBAM exposure also serve ESRS E1 compliance, your customer responses and your commercial strategy.

• Master your product carbon data, by route and installation. Without verifiable primary data, you face default values and their mark-up, and cannot demonstrate a low-carbon advantage to your customers.
• Decarbonise processes to reduce ETS exposure. This is the only structural response to the loss of free allowances, and the only one that also protects your exports, which CBAM does not cover.
• Structure declarant compliance if you import covered inputs (scrap, alumina, clinker, slabs): authorised declarant status, supplier collection, certificate management.
• Make your product footprint a selling point. A documented low-carbon benchmark reduces your European customers' CBAM bill: it is an advantage that can be substantiated, provided you prove it.
• Monitor the export rebates issue and scope expansion: both can change your economic equation over the horizon of an industrial investment.

CBAM is managed through product carbon strategy, at the intersection of footprint measurement, process decarbonisation and regulatory reporting.

8Key takeaways

• Definitive phase since 1 January 2026, but certificate purchases from 2027 and first annual declaration in September 2027 (timetable relaxed by Omnibus Regulation (EU) 2025/2083).
• For a producer, the real issue is not the import levy but the end of free ETS allowances: from 2.5% in 2026 to 100% in 2034, with a steep jump between 2029 and 2030.
• Your exports are not protected: the loss of free allowances affects you without a CBAM counterpart, and export rebates remain uncertain (WTO issue).
• Actual data are an asset: they avoid the punitive mark-up on default values and demonstrate a low-carbon advantage. Choosing between actual data and default values is a financial decision.
• A single data investment serves CBAM, ESRS E1 and your customer responses. Process decarbonisation is the only structural response.

Further resources

Frequently asked questions

1Is CBAM a carbon tax on imports?

Not officially. It is an adjustment mechanism that aligns the carbon cost of imported products with the cost borne by European producers through the ETS. Its practical effect for an importer resembles a tax, but its legal objective is to prevent carbon leakage and restore a level playing field - making it compatible, in principle, with WTO rules.

2I am a producer in France, not an importer: does CBAM affect me?

Indirectly but strongly, if you produce in a covered sector (steel, aluminium, cement, fertilisers, hydrogen, electricity). You do not pay CBAM on imports, but you gradually lose your free ETS allowances between 2026 and 2034, your European customers request your carbon data, and if you import covered inputs you also become a declarant. CBAM is therefore as much an issue for producers as for importers.

3When exactly do free allowances disappear?

In stages: a 2.5% reduction in 2026, 5% in 2027, 10% in 2028, 22.5% in 2029, 48.5% in 2030, 61% in 2031, 73.5% in 2032, 86% in 2033, and 100% in 2034. The steepest step is between 2029 and 2030, when the reduction more than doubles in a year.

4Is it better to provide actual data or use default values?

It depends on your installation's actual carbon intensity relative to the benchmark. Default values carry a mark-up (10% in 2026, up to 30% in 2028 for steel, aluminium and cement). For a low-carbon site, actual data are an obvious way to save. For a site more carbon-intensive than average, the choice must be quantified: in some cases, the default may cost less in the first year. This is a financial decision rather than a simple formality.

5How does CBAM interact with the CSRD and ESRS E1?

Both push in the same direction: quality and granularity of emissions data. The primary data you structure for CBAM (by installation, by production route) feed directly into your ESRS E1 reporting and scope 3. Conversely, a credible decarbonisation pathway documented for the CSRD reduces your ETS/CBAM exposure. The same data foundation serves both regimes.

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