The Carbon Border Adjustment Mechanism (CBAM) (established by the CBAM Regulations) is a tool designed to place a carbon price on in-scope goods and precursors originating from a third country under Article 2 of the CBAM Regulations, read with Annex I, identified by their specific Combined Nomenclature (CN) codes (Affected Exports). When Affected Exports are imported into the European Union (EU), CBAM serves to equalise the costs borne by EU producers under the EU Emissions Trading System (EU ETS) and those borne by producers in the originating third country, thereby preventing carbon leakage.
CBAM has been in effect under a transitional phase since 2023, but will take effect in its definitive regime from 2026. As exporters to the EU prepare for definitive implementation on 1 January 2026, on 29 September 2025, the Council of the EU approved regulations for the simplification of CBAM. In the interim, the regulations were signed and published in the Official Journal of the EU (OJ) on 17 October 2025 as Regulation (EU) 2025/2083. These regulations enter into force on the third day following OJ publication (Monday, 20 October 2025).
This “simplification” package (part of its Omnibus I reforms) aims to preserve the scheme’s climate objectives while reducing the associated administrative and regulatory burden, as well as compliance costs.1
Key changes introduced
The core changes include:
- A new de minimis mass-based threshold of 50 tonnes per importer per annum (with electricity and hydrogen excluded from this exemption), which replaces the previous intrinsic value de minimis threshold of EUR 150.
- An extended annual declaration and surrender deadline from 31 May to 30 September for the preceding calendar year, providing additional time for verification of emissions.
- A deferral of the obligation to purchase quarterly CBAM certificates for Affected Exports imported in 2026 until February 2027.
- Streamlined verification rules.
Secondary legislation will detail the rules for verification, accreditation and carbon pricing and is due to be published by the end of 2025. This will provide further clarity to exporters.
Scope of application
CBAM initially applies to a specific list of goods in sectors with high emissions and a significant risk of carbon leakage:
- Cement
- Fertilisers
- Iron and steel
- Aluminium
- Electricity
- Hydrogen
It is important to note that the regulation also covers certain related precursor materials (input materials) and some downstream products, such as screws and bolts.
The scope of Affected Exports did not undergo any major amendments by the recent simplification but is expected to be extended to include other energy-intensive sectors such as paper, pulp and certain chemicals. No extension is expected until 2027.
Currently, the financial obligations under CBAM only apply to direct emissions released during the production process for all Affected Exports, with the exception of cement and fertiliser, where indirect emissions arising from the generation of electricity must also be accounted for.
To import any of the goods covered by CBAM into the customs territory of the European Union, an importer must obtain the status of an "authorised CBAM declarant" from 1 January 2026.2 From 2027, an authorised declarant must purchase, and at the end of each quarter hold, certificates equivalent to at least 50% of the emissions embedded in imported goods. If the importer can prove that a carbon price has already been paid in the country of origin or a third country, the CBAM declarant can claim a reduction equal to the effective carbon price paid in the country of origin or another third country.
Impact on South African exporters
The simplification of CBAM will offer some relief to SMEs importing into the EU, whose imports will now fall below the de minimis threshold of 50 tonnes. For South African exporters, there will be a benefit when trading with these SMEs. However, the scale of exports in key sectors such as aluminium, steel and iron means that the threshold will likely not play a significant role.
Importers in the EU will be required to report actual embedded emissions, which relies on accurate calculation and third-party verification of such emissions in the supply chain. While the postponement of CBAM declarations by four months provides some breathing room for the calculation and verification of emissions, exporters to the EU should already be preparing to provide this data to meet the new deadline of 30 September 2027. Similarly, the extended timeline for the purchase of CBAM certificates will provide administrative relief and give third-country exporters time to collect data, but ongoing preparation will be necessary.
The extension of indirect emissions within the scope of application for aluminium and steel has been postponed to 2027. For South African exporters reliant on the national grid, indirect emissions are likely high, and with slow decarbonisation of the grid, this will still place a higher financial obligation on importers under CBAM from 2027. The transition to renewable energy, both in public and private infrastructure, will remain a determinant for South African industries to remain competitive.
Emissions already paid for under a local carbon pricing mechanism are deducted from the financial obligation under CBAM. South Africa's carbon tax, in terms of the Carbon Tax Act, is such a carbon pricing mechanism, and importers of South African Affected Exports will therefore benefit from the offset under CBAM to the extent that South African exporters are paying the tax locally.
Some reports in the past have suggested that South Africa was considering pursuing the matter of CBAM implementation at the World Trade Organisation (WTO). However, recent reports indicate that South Africa is pursuing a negotiated settlement. Such an approach would be consistent with South Africa's traditional approach to trade disputes.
