The European Union's Carbon Border Adjustment Mechanism (CBAM) is not a distant policy proposal. It is live, and it is already reshaping how mid-market exporters outside the EU approach carbon data. Since October 2023, importers of cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen have been required to report the embedded emissions of those goods. The transitional phase runs until the end of 2025, after which the financial mechanism begins in earnest.
For mid-market exporters—those with annual revenues between £10 million and £250 million—the challenge is not just technical. It is structural. Unlike large multinationals, they rarely have dedicated sustainability or trade compliance teams. The responsibility often falls to a finance director, a logistics manager, or a quality assurance lead who already wears multiple hats. This article explains what has changed, why it matters, and how these businesses can navigate the new rules without building a full compliance department.
What Has Changed
CBAM is designed to equalise the carbon price between domestic EU production and imported goods. The mechanism requires importers to purchase certificates corresponding to the carbon price that would have been paid if the goods had been produced under EU carbon pricing rules. The transitional phase, which began on 1 October 2023, is a reporting-only period. Importers must declare the embedded emissions of their goods, but no financial payment is due yet.
The definitive regime starts on 1 January 2026. From that point, importers will need to buy CBAM certificates, and the price will be linked to the EU Emissions Trading System (ETS) allowance price. The exact price is not fixed, but it has traded in a range of roughly €60 to €100 per tonne of CO2 in recent years. For a mid-market exporter shipping aluminium extrusions or steel fasteners, the cost could be significant, depending on the carbon intensity of the production process.
What is often underappreciated is that CBAM is not a tariff on the value of goods. It is a levy on the embedded carbon. That means two suppliers of the same product can face very different CBAM costs depending on their energy sources, production efficiency, and the carbon accounting methods they use. This creates a commercial incentive to reduce emissions, but it also creates a data burden.
Who Is Affected
The direct legal obligation falls on EU-based importers. However, the practical burden is being pushed up the supply chain. Importers are asking their non-EU suppliers for detailed emissions data, often in formats specified by the EU Commission. Mid-market exporters in the UK, Turkey, China, India, and other non-EU countries are receiving requests for data they have never collected before.
For example, a UK-based manufacturer of steel components that exports to Germany may be asked by its German customer to provide a full breakdown of emissions from raw material extraction, transportation, and production. The UK has its own carbon pricing mechanism, but it is not yet aligned with the EU ETS. That means UK exporters cannot simply rely on domestic carbon prices to offset CBAM liabilities.
Smaller suppliers within the supply chain are particularly exposed. A mid-market exporter may have dozens of upstream suppliers, each with different levels of data maturity. Collecting accurate emissions data from a small foundry in India or a logistics provider in Poland is not straightforward. The data may not exist, or it may be based on estimates that do not meet EU verification standards.
Why It Matters
The commercial impact is twofold. First, there is the direct cost of CBAM certificates once the definitive regime begins. Second, there is the indirect cost of data collection, verification, and potential loss of competitiveness if a supplier cannot provide the required information.
For mid-market exporters, the risk is not just financial. It is relational. EU customers may choose to switch to suppliers who can provide verified emissions data with minimal friction. In a market where carbon transparency is becoming a procurement criterion, the ability to produce reliable data is a competitive advantage. Conversely, a supplier that cannot provide data may be excluded from tenders or asked to accept lower prices to compensate for the importer's CBAM costs.
The transitional phase is effectively a learning period. Importers are using it to test their data collection processes and to identify which suppliers are ready for the definitive regime. Mid-market exporters that treat this as a compliance exercise rather than a strategic issue risk being left behind.
How Mid-Market Exporters Are Responding
In the absence of full compliance teams, mid-market exporters are adopting pragmatic approaches. Some are appointing a single 'CBAM lead' within the organisation, often someone from finance or operations, who is responsible for coordinating data collection and communication with EU customers. This does not require a new hire, but it does require clear ownership.
Others are using external consultants or software tools that specialise in carbon accounting. The market for such services is growing, but costs vary widely. A basic assessment might cost a few thousand pounds, while a full lifecycle analysis could run into tens of thousands. For a mid-market exporter, the key is to match the level of effort to the likely CBAM exposure.
A common first step is to map the supply chain and identify the carbon hotspots. This does not require a full life-cycle assessment. It can start with a simple spreadsheet that lists each input, its origin, and the likely emissions intensity based on industry averages or supplier-provided data. The EU Commission has published default values for certain goods, which can be used when actual data is not available. However, these defaults are often conservative and may overstate emissions, leading to higher CBAM costs. That creates an incentive to collect real data.
Some exporters are also exploring contractual clauses that allocate responsibility for data provision. For example, a UK exporter might include a clause in its supply agreements requiring upstream suppliers to provide emissions data annually. This shifts the burden but also creates a legal obligation that can be enforced.
Commercial Impact
The financial exposure for a mid-market exporter depends on the carbon intensity of its products and the volume of exports to the EU. Consider a hypothetical UK steel fabricator exporting 10,000 tonnes of steel products annually to the EU. If the embedded emissions are 1.5 tonnes of CO2 per tonne of steel, the total embedded emissions would be 15,000 tonnes. At a carbon price of €80 per tonne, the annual CBAM cost would be €1.2 million. That is a material sum for a mid-market business.
However, the actual cost may be lower if the exporter can demonstrate that its production is relatively clean, or if it can claim an adjustment for carbon prices already paid in the UK. The UK's Carbon Border Adjustment Mechanism is due to be introduced by 2027, but it is not yet in force. Until then, UK exporters may face a double burden: paying CBAM on exports to the EU while also paying UK carbon costs on domestic production. The UK government has indicated that it will seek to avoid double charging, but the details are not finalised.
For exporters in countries without any carbon pricing, the CBAM cost is likely to be higher. This could shift trade patterns, favouring suppliers from countries with lower carbon intensity or those that can provide verified data. Mid-market exporters that invest in data collection now may be able to negotiate better terms with EU customers, because they reduce the importer's administrative burden.
Risks and Unknowns
Several uncertainties remain. The EU has not yet finalised the methodology for calculating embedded emissions for all product categories. The current rules are complex, and there are ongoing discussions about simplifying them for small and medium-sized enterprises. The European Commission has proposed a de minimis threshold that would exempt imports below a certain weight, but this has not been confirmed.
Another unknown is the future trajectory of the EU ETS carbon price. If the price rises, CBAM costs will rise accordingly. Some analysts expect the price to reach €100 per tonne by 2030, but this is speculative. Mid-market exporters should stress-test their exposure under different price scenarios.
There is also the risk of trade retaliation. The EU's CBAM has been criticised by major trading partners, including the US, China, and India. If these countries impose retaliatory measures, the overall trade environment could become more uncertain. However, the EU has shown little sign of backing down, and the mechanism is widely seen as a cornerstone of its Green Deal.
Finally, there is the practical risk of non-compliance. Importers that fail to report accurately may face penalties. These penalties are passed down the supply chain in the form of demands for better data. Mid-market exporters that cannot provide the data may find their EU customers seeking alternative suppliers.
FY Outlook
The transitional phase is a window of opportunity. Mid-market exporters that use this period to build basic carbon data capabilities will be better positioned when the definitive regime begins. The key is to start with a simple assessment, identify the most carbon-intensive products, and engage with EU customers to understand their data requirements.
We expect to see a growing market for third-party verification services and software tools tailored to mid-market exporters. The cost of these services is likely to fall as the market matures. In the meantime, exporters should consider the following steps:
- Appoint a CBAM lead and allocate time for training.
- Map the supply chain and identify data gaps.
- Use EU default values as a starting point, but plan to replace them with actual data.
- Communicate with EU customers to clarify their expectations.
- Monitor EU regulatory updates, especially regarding the de minimis threshold and simplified methods.
Conclusion
CBAM is not a passing regulatory trend. It is a structural change in how the EU prices carbon at its borders. For mid-market exporters, the challenge is real but manageable. The businesses that treat this as a strategic issue—not just a compliance chore—will be able to protect their market access and potentially gain a competitive edge. The transitional phase is the time to act, not to wait for the definitive regime to force the issue.
