What is CBAM and what will it cost you?

Imagine your customer asks you a question, “What CBAM surcharge are you going to charge?” That is the moment when CBAM stops being a regulatory topic and becomes a business topic.

For many companies, this shift is still underestimated. CBAM is often discussed as if it were mainly about reporting or compliance. In reality, it introduces a carbon-related cost into imported materials and components, and that cost will increasingly show up in quotations, sourcing decisions, and customer negotiations.

What CBAM is actually about

CBAM, the Carbon Border Adjustment Mechanism, is the European Union’s attempt to create a level playing field between goods produced inside the EU and goods imported from outside. European producers already face carbon costs through the EU Emissions Trading System. Imported materials often do not. CBAM is designed to close that gap by imposing a carbon cost on imports of aluminum and steel.

In practice, this means that importers must determine the emissions embedded in the products they buy and, from the financial phase onward, pay for those emissions through CBAM certificates.

How the Calculation works

The calculation starts with the embedded emissions of the imported product. From that, you can deduct a benchmark equal to the average emissions of the 10 percent cleanest installations in the EU, multiplied by the CBAM factor. The remaining amount is then multiplied by the price of a CBAM certificate, which is linked to the ETS price.

In the example discussed in the episode, the embedded emission is 2.5, and the benchmark is 1.5. The CBAM factor was 100 percent in 2025; it is 97.5 percent now and will fall to zero. That means the benchmark deduction decreases over time, while the payable emissions increase.

What does that mean in Euros?

This is where CBAM becomes real. With a CBAM factor of 97.5 percent, the cost in his example would be 88 Euros per ton. Once the CBAM factor falls to zero percent, the cost rises to 212 Euros per ton.

When the ETS price rises to 250 euros per EUA, as expected and roughly in line with the average of the ten largest banks, the cost would rise to 625 euros per ton. If the emission factor were 4 instead of 2.5, the cost would reach 1,000 euros per ton. He also mentions that he sees a default value of 8 in some cases. Given the material price of around 2500-3000 Euros per ton, these numbers are large enough to change the economics of a casting project.

Why default values are so dangerous

The biggest cost risk does not necessarily come from dirty production. It often comes from missing data. Many supply chains may end up with only 5 to 10 percent of actual values, while 90 percent still rely on default values. And that is exactly where the painful surcharges appear. Marcel explicitly warns against ending up with a surcharge of 400, 500, 600, or 700 euros per ton.

Marcel gives a real-world example from the fastening industry. One company faced the difference between adding 70 euros per ton on imported goods with an average product price of around 900 euros per ton, or adding 700 euros per ton if they had to go with default values.

That example makes the issue very clear. The difference does not come from the product itself. It depends on whether the emissions can be properly documented and verified.

What this means for castings from China and India

For the casting industry, the relevance is immediate. A Tier-1 supplier or OEM importing castings from outside the EU will soon have to consider more than material price, labor cost, and freight. Embedded emissions and the quality of the underlying data now become part of the cost calculation as well.

The differences become visible in the comparison between India and China. For the same imported ton of castings, the average CBAM surcharge in 2026 could be around 134 euros per ton from India, while for China it could be around 400 euros per ton. That is a substantial difference, and it shows how strongly country-specific default values can affect the final price.

Once these surcharges are added, the logic of simply buying from the lowest-cost source starts to weaken. A part that looks cheaper on the quotation can quickly become more expensive when CBAM is included. That is why the discussion shifts away from compliance and toward pricing. In the end, CBAM is not just a reporting issue. It is a commercial issue.

Sooner or later, every importer will face the same question from a customer, purchaser, or internal finance department: “What CBAM surcharge are you going to charge?” If you don’t know the answer, the 2026 tax bill, due in January 2027, will tell you!