PODCAST | The road to CBAM: Carbon reporting in 2026

As the environmental cost of global supply chains – responsible for over 60% of global yearly emissions – becomes impossible to ignore, the EU’s Carbon Border Adjustment (CBAM) is emerging as a central tool for aligning trade with climate objectives.

CBAM aims to ensure that imported products carry the same carbon cost as those produced within the EU. This is to prevent ‘carbon leakage,’ which is when a company moves their production to another country with weaker climate policies to avoid strict carbon pricing. It is intended to level the playing field for domestic industries while also encouraging cleaner production in non-EU countries.

On January 1, 2026, CBAM will move from a reporting framework and become a real financial liability for importers: those who haven’t secured authorised CBAM declarant status will face penalties, higher costs, and operational disruption.

Trade Finance Global’s (TFG) Charles Osborne spoke with Adam Hearne, CEO and Co-founder of CarbonChain, about what this transition means in practice.

“If importers fail to obtain authorisation, not only will this result in them having to pay the CBAM liability for any goods they imported from January 1st, 2026, but they will also face penalties per tonne of carbon dioxide (CO₂) imported. And these penalties are huge,” Hearne explained.

CBAM as a levelling mechanism

EU producers already pay carbon costs under the EU Emissions Trading System (EU ETS), a system that operates on a ‘cap and trade’ principle. The ‘cap’ is the total limit on how much greenhouse gas can be emitted, and it is tightened every year in line with the EU’s climate targets. Companies receive or buy a certain number of carbon allowances — each one giving the right to emit one tonne of CO₂ — and these allowances can be traded on the market.

Free allowances have historically been given to certain industries to protect them from competition with producers in countries that have more lenient climate policies. At the same time, the ETS has been highly effective: from 2005 to 2023, it helped bring down CO₂ emissions from European industries by around47%, while also creating revenue to finance the energy transition.

The CBAM will enable the EU to start removing those free allowances. Once it’s fully in place, EU producers will no longer need this protection, because imported goods will also be charged a comparable carbon cost.

“CBAM effectively places a carbon cost on goods as if they were produced wholly in the EU,” said Hearne. “It’s trying to level the playing field between the carbon price paid in the EU by EU producers of CBAM goods, and the non-EU businesses that export these goods to the EU.”

The cost drivers of CBAM

While CBAM puts EU and non-EU producers on even footing, the amount an importer pays depends on two key variables. The first is the EU carbon price, which is set through ETS auctions — fluctuating daily depending on supply and demand, economic activity, and policy changes.

“This year the price has fluctuated between €60 and €90 per tonne of CO₂,” Hearne said. “The variable can be managed via a range of hedging tools and is very liquid. Many importers are well aware that they can control this exposure to a certain extent.”

The second key variable is the emissions intensity of the goods being imported, and unlike the carbon price, it’s not transparent or easily predictable. Emissions intensity depends entirely on the non-EU producer accurately measuring and sharing their emissions data in line with the EU’s strict CBAM methodology — something many producers have never done before.

“It’s quite hard for a lot of companies to adapt such a rigid methodology,” explained Hearne. CarbonChain works to fill this gap, working directly with importers and providing support on carbon accounting.

“On behalf of those clients, we work with producers to set up their carbon accounting infrastructure. And through CarbonChain, they ensure they calculate these emissions in line with the regulation,” he said.

Why accurate data matters

For many importers, the largest CBAM exposure doesn’t come from the carbon price itself, but from the accuracy of the emissions data they receive from suppliers.

According to Hearne, there could be cases where a producer originally reports emissions of around seven tonnes of CO₂ per tonne of product, only to have that figure fall to two tonnes once proper measurement and verification are applied.

Not only does this save on carbon costs, it also helps avoid the use of the EU’s default values, which are currently being used instead of actual emission data from producers as part of the transition period.

Default values are designed to be conservative, reflecting the upper end of sectoral emissions, and as a consequence, significantly inflating an importer’s CBAM liability. This makes it essential for producers to provide accurate data in order to turn carbon accounting into a commercial advantage.

But as companies prepare for CBAM’s definitive phase and as carbon terms become increasingly embedded into contracts, one major challenge is determining how to price carbon costs in supply agreements in the long term.

Pricing CBAM

“CBAM is difficult to price because many variables that won’t be certain until future dates,” said Hearne. “If you can put yourself in the shoes of some of these producers and importers, they’ve got to calculate price exposure based on benchmarks the EU hasn’t even published yet.”

This uncertainty makes it difficult for both sides of a transaction to agree on who should bear the cost of carbon at the point of import. Although CBAM is ultimately a “‘polluter pays’ principle,” with certificate prices fluctuating, benchmarks emerging only after verification, and emissions data still being gathered across global supply chains, fixed-price terms are becoming increasingly impractical.

In the short term, this may result in some importers covering the cost of CBAM to make sure a certain supply chain remains stable. Over the longer term, however, Hearne notes that contracts may need to adopt more flexible structures — particularly “quarterly reconciliation components that look to reconcile the price based on updates to the legislation and changes to non-variables.”

Building confidence in the data provided by producers will also be essential. “Working closely with a business like CarbonChain to support this can help reduce the uncertainty associated with these variables and allow for more accurate costing,” he added.

The structural challenges ahead

Beyond contractual complexity, CBAM exposes a more deeply-rooted weakness in global trade infrastructure. “The compliance infrastructure we’ve inherited is literally obsolete,” said Hearne, highlighting the faults of legacy infrastructure.

He argues that CBAM represents more than administrative compliance: “I think compliance has been focused on cost a lot in the past, whereas the EU has made a very firm stance. They’re not backing down. They’re saying the way that trade flows around the world will now factor in the externality of carbon.”

This shift comes alongside new pricing dynamics, which bring a significant operational burden. Product-level carbon accounting is a complex process, especially for suppliers who have never had to do it before.

Compliance, therefore, requires coordination across sustainability experts, customs, finance, tax, and procurement, all while regulatory details remain incomplete, creating “significant uncertainty, frustration, and confusion,” said Hearne.

To reduce the burden, CarbonChain has developed a CBAM Data Catalogue, covering emissions information for producers, giving manufacturers pre-verified data and removing the need for repeated supplier engagement.

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The pressures are rising, and they will only keep doing so. CBAM is expected to expand both within existing sectors as free ETS allowances are phased out and into new categories such as chemicals and copper.

Businesses that fail to prepare now risk facing increasing carbon liabilities that will expand across multiple markets, rising each year as the world moves closer to net zero.