EU revises CBAM: Supporting SMEs while strengthening emissions control

The European Union (EU) has just approved a landmark update to the Carbon Border Adjustment Mechanism (CBAM)—a key instrument designed to prevent carbon leakage from imported goods. These reforms not only simplify compliance procedures but also introduce special exemptions for small and medium-sized enterprises (SMEs), while maintaining strict pressure on high-emitting sectors.

A New Regulatory Framework – A Fresh Wind for SMEs

A key highlight of this reform is the exemption for companies importing under 50 tonnes of CBAM-covered goods per year. Under the newly adopted rules by the European Parliament, these SMEs will no longer be subject to the CBAM carbon import tax—an adjustment expected to relieve over 90% of SMEs from administrative burdens.

While easing the load for the majority of small businesses (which make up a large share of total importers but contribute little to total emissions), the mechanism still maintains the capacity to monitor up to 99% of carbon emissions from imports—ensuring that climate targets remain intact.

Policy Significance: Aligning Environmental Goals with Economic Realities

Key Benefits:

• Reduced Compliance Burden: Removing reporting and payment requirements for most SMEs allows them to reallocate resources to core business activities and green innovation.

• Greater Flexibility for SMEs: As a backbone of the EU economy, small businesses now gain more room to experiment with environmentally friendly production methods.

Emissions and Market Impact:

• Boosting the Carbon Market: Firms in high-emission sectors like steel, cement, fertilizers, aluminum, and chemicals are incentivized to invest in emissions reduction.

• Continuing Emission Reductions: Despite exemptions, the EU still anticipates a reduction of up to 30% in emissions from CBAM-covered sectors by 2027 compared to 2020 levels.

• Supply Chain Impact: Global companies will be required to increase transparency in emissions management and supply chain operations—laying the groundwork for a global standard in carbon accounting.

Notable additional updates in 2025

Delayed Onset of CBAM Certificate Purchases: The EU plans to postpone the carbon tax payment start date to February 1, 2027, allowing more time for businesses to adapt.

Default Carbon Pricing: From 2027 onward, a default carbon price will be applied to countries that fail to provide adequate emissions data—reducing the risk of fraud and promoting transparency.

Stronger Penalties: Violations—especially attempts to split shipments to circumvent the rules—will be penalized at a rate 3–5 times higher than the owed CBAM payment.

Simplified Reporting: The EU will integrate CBAM reporting systems to streamline data handling and minimize errors.

Outlook: CBAM and the EU’s Global Climate Leadership strategy

These new reforms elevate CBAM beyond a technical tool to a strategic pillar in the EU’s climate and trade policies. The mechanism now clearly reflects the EU’s dual objective: supporting businesses—especially SMEs—in their green transition while reinforcing Europe’s role as a global climate leader.

With the 2030 target of reducing greenhouse gas emissions by at least 55% fast approaching, CBAM is expected to undergo further refinements to better align with trade policies and international carbon market mechanisms.

In the short term, policymakers will closely monitor the real-world impact of CBAM on SMEs and high-emission sectors. In the long run, the upgraded CBAM sends a clear signal: the EU is committed to a comprehensive, scalable, and enforceable carbon strategy—capable of steering the regional economy toward a sustainable path to carbon neutrality.

Source: CarbonCredit