A Comprehensive Guide to EU Climate Regulations: Everything you need to know about CBAM, ETS, CSRD and more

The European Union (EU) has set itself as a global leader in climate action, implementing a robust regulatory framework to achieve carbon neutrality by 2050. The primary goal of these regulations is to curb greenhouse gas emissions, promote sustainability, and ensure that companies, both within the EU and those trading with it, are actively contributing to the fight against climate change.

For businesses, navigating these regulatory requirements is crucial not only to avoid penalties but also to seize opportunities for growth and market leadership in an increasingly climate-conscious global economy. To help companies stay ahead, Carbmee offers state-of-the-art tools for emission tracking, supply chain transparency, and sustainability reporting. With a dedicated focus on meeting the unique challenges of these regulations, Carbmee ensures compliance and optimizes corporate sustainability efforts across various industries.

This guide delves into key EU climate regulations, providing a comprehensive understanding of how businesses can stay compliant and competitive.

The European Union’s climate framework is built around a set of flagship policies that translate the bloc’s net-zero ambition into concrete, enforceable requirements for businesses. These measures work in tandem to curb greenhouse gas emissions, accelerate the transition to clean technologies, and ensure that companies operating in—or trading with—the EU actively contribute to climate objectives.

For most organizations, the practical implications are clear: price signals on emissions (e.g., EU ETS), border measures that level the playing field for imports (CBAM), rigorous corporate disclosure and assurance standards (CSRD/ESRS), sector-specific guidance for land-based emissions (FLAG), and credible target-setting aligned with climate science (SBTi).

Together, these policies reshape how firms measure, manage, and report their environmental impact—requiring auditable data, product- and supplier-level transparency, and integration of carbon risk into strategic and financial decision-making.

What is the European Green Deal?

The European Green Deal is the EU’s overarching climate and industrial policy roadmap to make Europe the first climate-neutral continent by 2050. It bundles legislative, market, and investment measures to decarbonize energy, industry, buildings, transport, and agriculture while safeguarding competitiveness and social fairness. In practice, the Green Deal drives new rules for emissions measurement and reduction, cleaner technologies, and more sustainable resource use across the entire economy.

What is the goal of the European Green Deal?

Core objectives include cutting EU greenhouse gas emissions by at least 55% by 2030 versus 1990 levels, fostering innovation in clean technologies, and advancing a circular, sustainable economy that decouples growth from resource consumption. For companies, this translates into new expectations around energy efficiency, product- and supplier-level emissions transparency, and integration of carbon risk into operations and finance.

Is the European Green Deal legally binding?

The European Climate Law makes the 2050 climate-neutrality objective legally binding for the EU and enshrines the 2030 target in law. The Green Deal itself is not a single law; it is implemented through a mix of binding and non-binding instruments—such as regulations, directives, and funding programs (e.g., the Fit for 55 legislative package). As these instruments enter into force, businesses face enforceable requirements (with audits and penalties in scope), alongside incentives and finance mechanisms to accelerate the transition.

The Green Deal has implications for all industries, driving businesses to adopt new practices around energy consumption, emissions tracking, and supply chain management. Carbmee helps businesses align with the European Green Deal’s ambitious targets by providing a comprehensive platform that integrates real-time emissions data and offers actionable insights into optimizing energy efficiency and reducing carbon footprints. Discover how the European Green Deal impacts your industry and how to stay compliant.

What is the EU ETS emissions trading system?

The EU Emissions Trading System (ETS) is a cornerstone of EU climate policy. It’s a cap-and-trade program that sets a declining cap on total emissions from covered sectors—such as power generation, energy-intensive industry, and aviation (with maritime shipping being phased in). Companies must hold tradable allowances (EUAs) for every tonne of CO₂ they emit. As the cap tightens each year, the total supply of allowances falls, creating a price signal that drives efficiency improvements, fuel switching, and investment in low-carbon technologies.

Is the EU ETS mandatory?

Yes. Operators in covered sectors must monitor, report, and verify (MRV) their emissions and surrender allowances equal to their verified annual emissions. Non-compliance can trigger significant financial penalties and a requirement to make up any allowance shortfall in subsequent years.

Is the ETS a tax?

No. ETS is not a tax—it is a market-based pricing mechanism. The carbon price emerges from the balance of supply (the cap/allowances available) and demand (actual emissions and abatement costs). While it functions like a carbon price signal, it differs from taxation in design and governance; allowances are traded on the market and many are auctioned by Member States.

For businesses under ETS regulation, carbmee’s Environmental Intelligence Solution (EIS™) allows for real-time tracking of emissions, offering insights to help reduce carbon footprints, stay within allowance limits, and avoid penalties. By optimizing emissions management, businesses can mitigate the costs of participating in ETS while contributing to broader climate goals. Learn more about how to manage your emissions effectively under the EU ETS.

What is the Carbon Border Adjustment Mechanism?

CBAM is the EU’s carbon-leakage instrument. It is being phased in to ensure that imports of carbon-intensive goods face a carbon price comparable to EU-made products. Importers of certain goods (e.g., steel, cement, fertilizers, aluminum, electricity, hydrogen, and selected downstream products) must report embedded emissions and—at full phase-in—purchase CBAM certificates reflecting the EU carbon price, adjusted for any verified carbon price paid in the country of origin. The aim is to level the playing field, discourage offshoring of emissions, and drive global decarbonization.

Which countries are exempt from CBAM?

Exemptions or adjustments may apply where a carbon price broadly comparable to the EU’s is paid, or for specific territories closely aligned with the EU ETS framework. Exact eligibility, methodologies, and documentary requirements are defined in implementing acts and guidance and are updated over time.

Which products fall under CBAM?

CBAM currently targets a defined set of carbon-intensive goods—such as iron and steel, cement, fertilizers, aluminum, electricity, hydrogen, and certain downstream products. Coverage, calculation rules, and data requirements are evolving through implementing legislation, with scope expected to broaden over time as the mechanism matures.

With CBAM's phased implementation, companies that import goods into the EU must develop strategies to meet compliance requirements. Carbmee simplifies this process by offering tools that calculate and report the carbon content of imported goods, ensuring that companies stay compliant while minimizing carbon tariffs. Explore carbmee’s solutions to streamline CBAM compliance and reduce tariff impact.

What is the Corporate Sustainability Reporting Directive?

The CSRD expands the former Non-Financial Reporting Directive (NFRD) and requires in-scope companies to publish assured sustainability information aligned with the European Sustainability Reporting Standards (ESRS). Disclosures span environmental, social, and governance topics, including GHG emissions across Scopes 1–3, transition plans, targets, policies, risks, and KPIs. Reports must follow principles such as double materiality and enable digital tagging to improve comparability and investor use.

Is the CSRD mandatory?

Yes. CSRD is a mandatory EU directive with phased timelines by company type. In-scope entities must establish robust processes to collect, control, and obtain assurance over sustainability data, and to publish ESRS-aligned reports as part of the management report.

Which companies does the CSRD apply to?

Coverage includes:

• Large EU companies meeting EU size criteria,
• EU-listed SMEs (with certain phase-in relief), and
• Non-EU companies with substantial EU activity (meeting EU turnover and presence thresholds).
  Always confirm your status against the latest applicability thresholds, exemptions, and effective dates.

Under CSRD, businesses must implement transparent reporting processes and meet high standards of accuracy. Carbmee’s automated reporting tools allow companies to track their sustainability metrics efficiently, generate auditable reports, and ensure compliance with CSRD’s requirements. Find out more about Carbmee's support for CSRD compliance. Find out how carbmee’s reporting tools make CSRD compliance straightforward and efficient.

What is the Forest, Land, and Agriculture Guidance?

FLAG covers emissions and removals from land use, land-use change, forestry, and agriculture. These land-based systems are both major sources of greenhouse gases (e.g., from deforestation, soil disturbance, enteric fermentation) and powerful sinks via carbon sequestration in forests and soils. Guidance in this area focuses on avoided deforestation, improved land management, restoration, and sustainable agricultural practices to unlock significant mitigation potential.

What is FLAG in emissions?

In practice, FLAG refers to sector-specific accounting for land-based emissions (e.g., livestock, manure management, fertilizer use, soil carbon changes, deforestation) and removals (e.g., afforestation, reforestation, improved forest management). Because these dynamics differ from energy and industrial sources, FLAG often requires tailored methodologies, activity data, regional factors, and time-bound treatment of biogenic carbon flows.

Carbmee helps companies monitor and manage their emissions in these sectors through its Supply Chain Emissions Solution, enabling businesses to adopt sustainable land management practices and reduce their overall carbon footprint. Discover how Carbmee can help with FLAG compliance. Discover more about FLAG.

What is the Science Based Targets initiative?

The SBTi enables companies to set science-based climate targets aligned with the Paris Agreement—typically consistent with a 1.5°C pathway. It provides a clear framework to commit to, quantify, and reduce greenhouse-gas emissions across the value chain so corporate action aligns with global climate goals.

What is the SBTi’s process?

Organizations generally follow a five-step journey:

1. Commit to set a science-based target.
2. Develop targets covering Scopes 1, 2, and—where material—Scope 3, using sectoral and, when relevant, FLAG guidance.
3. Submit targets for SBTi validation.
4. Disclose progress publicly on an annual basis.
5. Take action to implement decarbonization measures and update targets as methodologies evolve.

What is the main objective of SBTi?

To ensure credible, measurable decarbonization trajectories that align corporate emissions reductions with the scientifically required pace to limit warming to 1.5°C—meeting rising expectations from regulators, investors, customers, and employees.

Carbmee’s Emission Intelligence Solution supports companies in calculating, tracking, and reducing their emissions across all three scopes (Scope 1, 2, and 3), helping them meet SBTi standards. Learn more about how Carbmee supports SBTi alignment. Learn how you can set and achieve science-based climate targets.

In addition to the key regulations discussed above, businesses should also be aware of other emerging and evolving EU climate regulations:

What is the Sustainable Finance Disclosure Regulation?

The SFDR requires financial market participants and financial advisers to disclose how they integrate sustainability risks, principal adverse impacts, and ESG characteristics/objectives into their investment products and processes. It forms part of the EU’s broader sustainable-finance framework alongside the EU Taxonomy, which classifies environmentally sustainable economic activities.

Who needs to comply with SFDR?

EU-based asset managers, institutional investors, and financial advisers must meet SFDR disclosure requirements. Depending on their activities and how products are marketed, certain non-EU firms may also be in scope when offering financial products within the EU.

Does SFDR apply to non-EU firms?

Potentially. Non-EU firms can fall under SFDR where they market financial products in the EU or otherwise become in scope through EU-facing activities. Applicability depends on the firm’s structure, distribution channels, and the nature of products offered.

What is the EU Taxonomy Regulation?

The EU Taxonomy is a classification system that defines when an economic activity is environmentally sustainable. It uses technical screening criteria and “do no significant harm” safeguards across objectives such as climate change mitigation and climate change adaptation, alongside minimum social safeguards. By setting clear thresholds and metrics, it establishes a common language for sustainability across sectors and asset classes.

Why is the EU Taxonomy Regulation important?

The Taxonomy brings clarity, consistency, and comparability to sustainable finance and corporate disclosures. It guides capital toward activities aligned with EU climate and environmental objectives, and underpins reporting under CSRD and disclosures under SFDR—helping companies and investors demonstrate which portions of their activities are Taxonomy-eligible and Taxonomy-aligned as the EU intensifies its focus on sustainable finance.

What is the Fit for 55 package?

Fit for 55 is the EU’s economy-wide legislative program to cut greenhouse gas emissions at least 55% by 2030 (vs. 1990). It’s a suite of laws—reforming and expanding the EU ETS, introducing CBAM, raising renewable and efficiency targets, tightening transport standards, and updating land-use rules—that together align energy, industry, and mobility with the EU’s 2030/2050 climate goals.

The European Commission has unveiled the "Simplification Omnibus" proposal, aiming to reduce regulatory burdens on businesses and enhance competitiveness. This initiative focuses on streamlining sustainability reporting and supply chain transparency rules, addressing concerns from industries about complex regulations.

• Corporate Sustainability Reporting Directive (CSRD): The proposal suggests limiting CSRD requirements to companies with over 1,000 employees, exempting approximately 80% of businesses currently obligated under the directive.
• Corporate Sustainability Due Diligence Directive (CSDDD): Proposed changes involve delaying the directive's implementation by a year to 2028 and narrowing its scope to direct suppliers only, reducing the compliance burden on companies.
• Carbon Border Adjustment Mechanism (CBAM): The proposal plans to exclude about 90% of importers from the carbon border fee, focusing only on those importing goods exceeding 50 metric tons annually.

The EU’s Simplification Omnibus proposal seeks to reduce administrative burdens while ensuring sustainability efforts remain impactful. By cutting reporting obligations by 25%, European businesses could save up to €40 billion, allowing them to redirect resources toward meaningful emissions reductions. At the same time, the Clean Industrial Deal proposes a €100 billion investment to support clean manufacturing and simplify state aid rules for energy-intensive industries—helping companies decarbonize where it truly counts.

While regulatory streamlining aims to enhance efficiency, companies must remain committed to real carbon reduction. A lighter reporting load does not mean a free pass on sustainability. Businesses should seize this opportunity to focus on direct emissions reductions, cleaner supply chains, and innovative green technologies. The EU maintains its net-zero goals, and industry leaders must continue driving tangible progress rather than seeing these changes as a rollback of environmental responsibility.

On the 10th of Stepember, 2025, the EU Parliament gave its final green light to targeted changes to the Carbon Border Adjustment Mechanism (CBAM) as part of the “Omnibus I” simplification package to cut red tape and bolster competitiveness. The amendments introduces a de minimis mass threshold designed to relieve SMEs and occasional importers while maintaining climate ambition: about 90% of importers would be exempt, yet ~99% of total CO₂ emissions from covered CBAM goods remain within scope, backed by strengthened anti-abuse safeguards.

Some Key Changes:

• New de minimis threshold (50 metric tons/year): Imports up to 50 t per importer per year would be fully out of CBAM scope, replacing the previous negligible-value exemption.
• Certificate purchase timing: Buying CBAM certificates would start in February 2027 (not 2026). Costs are deferred, not avoided: importers must still purchase certificates retroactively for goods imported in 2026.
• Certificate management: The quarterly minimum holding requirement falls from 80% to 50%, giving companies more flexibility to optimize CBAM costs.
• CBAM declaration deadline: The annual filing deadline moves to end-October, allowing more time to collect and verify emissions data.
• Recognition of third-country carbon prices: Declarants may deduct CO₂ prices paid in third countries other than the country of origin, improving fairness and flexibility.
• Authorized CBAM representative: Companies may appoint a CBAM representative dedicated to CBAM administration (independent of customs filings), enabling leaner processes and clearer accountability.
• Process simplifications: Rules for authorization, embedded-emissions calculation, verification, and the financial liability of authorized CBAM declarants are streamlined.

The legislative process is now in its final phase, pending Council approval.

As climate regulations in the EU continue to evolve, businesses must adopt robust systems to manage their carbon emissions, track supply chain sustainability, and ensure compliance with a growing range of regulations. Carbmee provides a comprehensive solution that integrates emissions tracking, supply chain transparency, and sustainability reporting to help companies meet their climate goals.

• Environmental Intelligence System (carbmee EIS™) :
  Enables businesses to monitor emissions across their entire operation in real time, helping them stay compliant with ETS, CBAM, SBTi, and FLAG regulations.
• Automated ESG Reporting:
  Helps businesses streamline their reporting processes for CSRD and other ESG-related disclosures, reducing the complexity of meeting these stringent requirements.
• Supply Chain Emissions Management:
  Provides insights into the carbon footprint of supply chains, ensuring transparency and sustainability across sourcing, production, and distribution networks.

The EU’s climate regulations are reshaping the global business landscape. Companies that adapt quickly and invest in sustainable practices not only meet regulatory demands but also position themselves as leaders in the green economy. By leveraging carbmee’s cutting-edge tools, businesses can ensure they meet all reregulatory requirements, reduce their emissions, and build a more sustainable, resilient future.

Explore how carbmee can help your business navigate the complexities of EU climate regulations and achieve long-term sustainability. Visit our solutions page to learn more.