The EU CBAM Transitional Phase Begins: What Chinese Steel and Aluminum Exporters Must Report

TL;DR

October 1, 2023 is a date that most Chinese exporters and Middle East trading companies missed. That's when the EU's Carbon Border Adjustment Mechanism (CBAM) entered its transitional phase — and the compliance architecture for the world's first carbon border tax went live. During this phase (Oct 2023 – Dec 2025), EU importers of steel, iron, aluminum, cement, fertilizers, electricity, and hydrogen must submit quarterly reports detailing the embedded greenhouse gas emissions in their imported goods. No financial payment is required yet — this is a data-collection exercise. But the data being collected now will determine the cost structure when the definitive phase begins on January 1, 2026, at which point importers must purchase CBAM certificates priced at the EU Emissions Trading System (ETS) auction rate — currently averaging around €60–80 per tonne of CO₂. For Chinese manufacturers, the gap is stark: China's own ETS prices hover near $11 per tonne, while the EU's runs at ~$80. That $70/tonne differential will become a direct cost on every tonne of Chinese steel and aluminum entering the EU. If you export Chinese industrial goods to Europe — or if you're a Middle East trading company re-exporting Chinese steel through Turkey or Egypt — you need to understand CBAM now, not in 2026.

Deep Dive

The regulation is deceptively simple in concept and punishingly complex in execution. On October 1, 2023, the European Union's Carbon Border Adjustment Mechanism entered its transitional phase under Implementing Regulation (EU) 2023/1773. The mechanism targets a specific set of carbon-intensive product categories: iron and steel, aluminum, cement, fertilizers, electricity, and hydrogen. The strategic logic is straightforward — the EU's Emissions Trading System (ETS) imposes a carbon price on European producers; CBAM extends that price to imports, preventing "carbon leakage" where production simply moves to countries with lower or no carbon pricing.

During the transitional phase, EU importers are required to submit quarterly reports detailing the embedded greenhouse gas emissions in their CBAM-covered imports. The first reporting period covered October to December 2023, with the first report due by January 31, 2024. Reports must include both direct emissions (from the production process itself) and indirect emissions (from electricity consumed during production). The critical detail: if importers cannot obtain actual emissions data from their suppliers, they must use "default values" — and default values are intentionally set at punitive levels, above the average emissions intensity of the product category, to incentivize actual data collection.

For Chinese manufacturers, CBAM creates a structural compliance challenge that extends far beyond Europe. China is the EU's largest import partner, generating approximately €519 billion in trade in 2024. Although CBAM-covered goods currently represent only about 1.8% of China's total exports to the EU, the exposure is concentrated in precisely the sectors where Chinese producers compete most aggressively: steel and aluminum. The carbon price gap between the two systems is enormous. The EU ETS averages approximately $80 per tonne of CO₂ equivalent in 2025, while China's national ETS hovers near $11 per tonne. Under the CBAM mechanism, importers can deduct carbon costs already paid in the country of origin — but at $11 per tonne, the deduction barely scratches the surface of the EU obligation.

The implications extend beyond the China-to-EU direct trade lane. Middle East trading companies that source Chinese steel and aluminum, process or warehouse it in the Gulf or Turkey, and re-export to European customers are also within CBAM's reporting scope. The mechanism applies to the embedded emissions of the imported product regardless of the immediate country of export — meaning a Turkish re-exporter of Chinese steel slabs must still account for the Chinese production emissions, not merely the Turkish handling emissions.

The transitional phase is deliberately designed as a learning period. The European Commission published detailed guidance for both EU importers and non-EU installations, alongside dedicated IT tools for emissions calculation. No CBAM certificates need to be purchased during this phase, and no financial penalties apply for reporting — though penalties will apply for failure to report. The Commission is explicitly using this period to refine the calculation methodology before the definitive phase begins on January 1, 2026, when real financial liabilities kick in and certificate purchases become mandatory.

For Chinese exporters serving both European and Middle Eastern markets, the strategic calculus is this: CBAM is currently a reporting exercise, but the data infrastructure being built now — emissions measurement, supply chain traceability, verification protocols — will become mandatory for market access by 2026. Chinese producers who invest in emissions measurement and third-party verification capacity during the transitional phase will be positioned to provide actual emissions data to their EU importers, avoiding the punitive default values. Those who ignore CBAM until the definitive phase will find themselves structurally disadvantaged — their products carrying a higher carbon cost than competitors who planned ahead.

The parallel development in China is also relevant. Beijing has accelerated its own ETS expansion, adding steel, cement, and aluminum to the national carbon trading system on March 26, 2025, bringing approximately 3 billion tonnes of CO₂ under regulatory coverage. The medium-term objective is to narrow the carbon price gap with the EU, which would increase the deduction available to Chinese exporters under CBAM. But that convergence is years away — the immediate reality for the 2023–2025 transitional period is a data-gathering exercise that will set the baseline for billions of euros in future compliance costs.

QC Checklist for Importers

• Product Scope Identification: Map all imports from China that fall under CBAM's six categories — iron/steel (CN codes 72xx, 73xx), aluminum (76xx), cement (2523), fertilizers (3102, 3105), electricity, hydrogen — against your customs declarations

• Supplier Emissions Data Request: Send a formal data request to each Chinese supplier for actual direct and indirect emissions per tonne of product — specify the EU CBAM methodology (not generic carbon footprint estimates)

• Default Value Risk Assessment: If suppliers cannot provide actual data, calculate your exposure under the EU's default values; these are intentionally set above average emissions intensity and will significantly inflate your CBAM cost from 2026

• Quarterly Reporting Calendar: Set internal deadlines for quarterly CBAM reports — Q1 (Oct–Dec) due Jan 31, Q2 (Jan–Mar) due Apr 30, Q3 (Apr–Jun) due Jul 31, Q4 (Jul–Sep) due Oct 31; assign internal responsibility for report preparation

• CBAM Transitional Registry Access: Ensure your EU-based importer has registered on the CBAM Transitional Registry and can access the reporting portal; test login and data submission workflow before the first deadline

• Verification Readiness: Begin identifying EU-accredited third-party verifiers now — capacity is limited, and the definitive phase (2026) will require mandatory verification of all actual emissions data

• Carbon Price Deduction Documentation: If your Chinese supplier operates under China's national ETS, obtain proof of carbon cost paid (ETS allowance purchase records) for potential deduction against CBAM obligations from 2026 onwards

• Re-Export Chain Mapping: If you source Chinese steel/aluminum through Middle East intermediaries (UAE free zones, Turkish warehouses), trace the emissions back to the original Chinese production facility — CBAM applies to production emissions regardless of the re-export chain

• Internal Training: Brief procurement, logistics, and finance teams on CBAM fundamentals — this is not solely a customs compliance issue; it affects supplier selection, pricing, and long-term sourcing strategy

• Downstream Product Awareness: Monitor the EU's proposed CBAM expansion to 180 downstream steel and aluminum products by 2028 — if you export finished goods containing Chinese steel/aluminum components to the EU, you may be in scope sooner than expected