CBAM: what Brazilian exporters need to know

What CBAM is

The Carbon Border Adjustment Mechanism (CBAM) is a European Union initiative aimed primarily at preventing what is called carbon leakage. The phenomenon happens when companies based in the EU, facing stricter environmental law and internal carbon costs, move production to countries with laxer climate policy, or when the EU imports cheaper goods from countries with lower carbon costs. The result is emissions transferred elsewhere, with no net global reduction.

At its core, CBAM tries to level the playing field between EU producers and exporters from third countries. It does that by putting a cost on the greenhouse gas (GHG) emissions embedded in certain products imported into the EU, mirroring the carbon price European industry already pays under the EU Emissions Trading System (EU ETS).

The mechanics are fairly simple: a European importer has to buy and surrender CBAM certificates matching the carbon embedded in the imported goods. The price of those certificates tracks the weekly average price of EU ETS allowance auctions. For Brazilian exporters this means the GHG emissions tied to producing their goods now carry a direct cost in the European market, and that cost hits price competitiveness.

Products covered

In its first phase CBAM focuses on sectors considered carbon intensive and at high risk of leakage. The products covered are:

• Steel: one of the most affected sectors. Brazil has a large steel industry that exports significantly to the EU. Steelmaking, particularly via blast furnace, is carbon intensive.
• Aluminium: like steel, primary aluminium production is energy intensive and, where the power mix is fossil, highly emitting. The EU is a relevant market for Brazilian aluminium.
• Cement: cement manufacturing is intrinsically tied to CO2 emissions, both from the chemical decarbonation of limestone and from burning fossil fuels to heat the kilns. Export volumes to the EU may be smaller than steel or aluminium, but any future exporter will have to price this in.
• Fertilisers: nitrogen fertiliser production in particular uses natural gas as both feedstock and energy source, generating significant emissions. Brazil, a major agricultural player, also has a fertiliser industry.
• Electricity: for countries neighbouring the EU that trade power, the emissions of generation fall under CBAM. It does not apply directly to Brazil for geographic reasons, but the electricity used to produce the other imported goods is a critical component of the indirect emissions calculation.
• Hydrogen: producing hydrogen, especially grey hydrogen made from fossil fuels, is carbon intensive. As the EU pushes decarbonisation and green hydrogen, imports of hydrogen (or of products that use it upstream) will be scrutinised.

How much each matters to Brazil is not in doubt. Steel and aluminium sit at the top of the list of materials exported to the EU and will feel the impact first. Brazil's ability to produce steel and aluminium at lower carbon intensity, thanks to charcoal from planted forest and to hydropower, can be a competitive advantage, but only if those emissions are properly measured and reported.

Timeline

CBAM does not land all at once. The EU built in a transition period so importers and exporters can adapt.

• Transitional phase (1 October 2023 to 31 December 2025): this first phase is reporting only. European importers (or their representatives) collect and report quarterly the GHG emissions embedded in the CBAM goods they import. There is no financial cost attached to CBAM for exporters during this period. The point is to gather data, get everyone used to the reporting requirements and validate the methodology. Brazilian exporters need to understand that although the formal reporting duty sits with the importer, obtaining the primary data on the GHG emissions of the goods is the exporter's job. Without that data the importer is forced to use EU default values, which are punitive by design.

• Definitive phase (from 1 January 2026): here the game changes. From this date European importers have to buy and surrender CBAM certificates matching the GHG emissions embedded in the imported goods. The certificate price is tied to the weekly average price of EU ETS allowances. From 2026 onwards there is a direct financial cost to importing carbon-intensive Brazilian products into the EU. The cost is formally paid by the European importer, but it inevitably lands either in the price of the product or in the exporter's margin, depending on market dynamics and bargaining power.

The transitional phase is a narrow window of opportunity. It is the time to invest in data collection systems, internal capability and a decarbonisation plan. Complacency now turns into competitive disadvantage and extra cost from 2026.

How to calculate embedded emissions

The heart of CBAM is being able to measure embedded emissions precisely. The EU defines them as the direct and indirect GHG emissions released during the production of the goods.

• Direct emissions (Scope 1): emissions from sources owned or controlled by the company. In CBAM terms, that means emissions released at the exporter's production sites: fuel burned in kilns and furnaces, stacks, specific chemical processes and owned vehicles.
• Indirect emissions (Scope 2, and relevant Scope 3):
  • Scope 2: emissions from the production of the electricity, steam, heat or cooling bought and consumed by the company. If the electricity used to make the steel or aluminium comes from a coal plant, the impact is significant. If it comes from hydro or another renewable source, it is far smaller.
  • Relevant Scope 3: in future, indirect emissions may extend to relevant Scope 3 categories such as the raw-material supply chain. For now the focus is on direct emissions at the plant and indirect emissions from purchased electricity.

Accepted methods: the EU sets out specific methodologies, generally based on ISO 14064-1 or the GHG Protocol. The preferred route is direct monitoring of emissions, with calculation from primary activity data (energy use, raw material consumption and so on) and specific emission factors.

EU default values vs real values: during the transitional phase, if the exporter does not provide validated emissions data, the European importer must use default values published by the European Commission. Those values are deliberately overstated, representing the average emissions of the worst-performing 10% of EU producers for the goods in question. The message is unambiguous: not presenting real, verified, primary data results in a higher carbon cost.

Brazilian companies need to invest in measuring emissions across their production processes and their energy supply. That is the first and most important step to blunt CBAM's impact. The product carbon footprint is the calculation the importer will ask for.

Impact on Brazilian exporters

The impact on Brazilian exporters will be substantial, particularly in steel and aluminium, where value chains are more complex and energy intensive.

Steel: Brazilian steelmaking has one feature working in its favour. Charcoal from planted forest in pig iron production, plus a largely renewable power mix, put much of national output below the European average intensity. But that advantage does not exist on the importer's paperwork until it is measured, verified and delivered in the format the Commission asks for. With no data, the default value applies. With the default value, the advantage becomes a cost.

Aluminium: primary aluminium is the case most dependent on the power mix of them all. Electricity accounts for most of the product's carbon intensity, which means a traceable renewable energy contract changes the CBAM figure directly. Document the origin of the power per production unit, not as a company-wide average.

Cement and fertilisers: volumes exported to the EU are smaller, but intensity per tonne is high and process emissions (the decarbonation of limestone, in cement) do not disappear by switching fuel. For exporters, the calculation has to separate process emissions from combustion emissions, because the two have different abatement routes.

The sector-by-sector breakdown is in CBAM in Brazilian industry.

What to do now

1. Find out whether your product is on the list. CBAM is defined by CN/NCM code, not by commercial name. Check the exact code of what you export.
2. Measure embedded emissions per installation and per product, not as a company average. That is how the importer has to report them.
3. Isolate the electricity. The origin of the power is the single biggest lever on the final figure, and the easiest to evidence with a contract.
4. Get it verified. Unverified data tends to fall back to the default when the importer has to close the declaration.
5. Keep the traceability. From 2026 the figure turns into money, and money gets audited.

The short read: CBAM does not punish producing in Brazil. It punishes not being able to prove how you produce in Brazil.