What is the Carbon Border Adjustment Mechanism?
CBAM is the EU's instrument for putting a fair price on the carbon emitted while producing carbon-intensive goods imported into the EU, and for encouraging cleaner industrial production outside it.
Put plainly, CBAM is a European Union policy that controls the greenhouse gases embedded in imported goods, both to reduce climate change and to level the field between industries. It exists to stop carbon-intensive production simply moving outside the EU, and so to keep domestic companies — which already pay for carbon under the EU Emissions Trading System (EU ETS) — competitive.
CBAM's transitional phase began on 1 October 2023 and it applies in full from 2026. Importers into the EU must report the carbon emitted in producing their goods and buy corresponding certificates where emissions exceed EU benchmarks. The main products affected are cement, iron and steel, aluminium, fertiliser, hydrogen and electricity.
CBAM does more than push companies towards greener production technology: it puts financial pressure on those that fall short on greenhouse gas standards, and it can open export opportunities for those that comply.
The phases of CBAM
CBAM runs in three main phases:
- Transitional phase (2023–2025). From 1 October 2023, importers into the EU report quarterly on the volume of goods imported and the greenhouse gases attached to them, without paying anything. The first reporting period closed on 31 January 2024. The goods covered — cement, iron and steel, aluminium, fertiliser, hydrogen and electricity — account for up to 94% of EU industrial emissions.
- Operating phase (2026–2034). From 2026, importers must buy CBAM certificates matching the emissions embedded in the goods they import, and report volumes and emissions annually by 31 May. This phase also sees free allocation phased out and real charges applied to importers.
- Full operation (from 2034). CBAM applies in full: no more free CO₂ allowances, and importers bear 100% of the CBAM charge.
Keeping up with these phases matters for exporters, and for Vietnamese exporters in particular, both to stay competitive and to handle what the new rules demand.
How do goods reach the EU market under CBAM?
To export to the EU under CBAM, Vietnamese companies need to take several steps. First, since 1 October 2023, exporters must report the greenhouse gas emissions attached to the goods they ship, including iron, steel, cement and fertiliser.
When the goods enter the EU, the importer buys CBAM certificates matching the emissions generated in producing them. The certificate price follows the EU ETS carbon price. Vietnamese companies therefore need detailed emissions tracking and reporting of their own, so the number of certificates required can be determined.
Companies also need a firmer grasp of emission factors, and investment in cleaner production technology to bring emissions down. That serves compliance with CBAM and competitiveness in the EU market at the same time. Government and regulators, for their part, need to support companies as policy adjusts and to publish concrete guidance on what CBAM requires.
How are CBAM certificates bought?
Importers register with their national authority and buy CBAM certificates covering emissions above EU benchmarks. The certificate price is based on the weekly EU ETS allowance price. During the transitional phase no financial adjustment is required, but importers must report output and emissions in full.
After the transitional phase, from 2026, buying CBAM certificates becomes mandatory, and importers must surrender certificates matching the greenhouse gases embedded in their products. Understanding the rules and building accurate reporting is therefore what makes participation in this market workable.
What CBAM means for Vietnam
The EU's mechanism is expected to have a significant effect on Vietnamese exports, particularly in emission-intensive sectors: iron and steel, aluminium, cement and fertiliser. Since 1 October 2023, Vietnamese exporters have had to evidence the carbon embedded in their products, which can raise costs and weaken their position in the EU market. Forecasts suggest Vietnamese steel export value could fall by about 4%, with output down an estimated 0.8% under CBAM pressure.
Companies in Vietnam also face the challenge of upgrading technology to cut greenhouse gas emissions. The mechanism may encourage them to adopt green and innovative technology to hold their competitive position. The Vietnamese government needs supporting policy, including a domestic carbon pricing system, both to soften CBAM's impact and to work towards carbon neutrality by 2050.
