The CBAM is reshaping European manufacturing. Here’s how you can ensure compliance and stay competitive.
The Carbon Border Adjustment Mechanism (CBAM) is a European Union regulation that prices the emissions embedded in products imported into the EU. The CBAM regulation is reshaping the European manufacturing industry and having knock-on effects on the global economy.
The regulation requires companies operating in the EU to buy emission allowances, known as CBAM certificates, for the emissions produced overseas during the manufacturing of the goods they import. This will drive change in procurement practices, as importers will be incentivised to reduce their CBAM-associated carbon tax by reducing their greenhouse gas emissions from non-EU exporters.
By taxing goods produced in countries with less stringent environmental policies, EU authorities are tackling the issue of carbon leakage and levelling the playing field between EU producers and companies exporting to the EU.
Forward-thinking businesses can get ahead of the game and measure their exposure to the risks, costs, and opportunities the CBAM presents. Here’s everything you need to know to get ready and get on board with CBAM.
Understanding how CBAM could impact your business
Having entered its pilot phase, the CBAM is already impacting companies wishing to export their goods into the European Union and the companies importing these goods.
This transitional phase will last until 31 December 2025. Until then, companies must start complying with CBAM’s reporting requirements and become more familiar with this regulation as it is gradually implemented.
CBAM will take full effect on 1 January 2026, when companies will be required to purchase CBAM certificates for the emissions embedded in their imports. This will align with the phase-out of free allowances under the Emissions Trading System.
The CBAM has started to impact the imports of cement, iron, steel, aluminium, fertilisers, electricity, and hydrogen into EU member states. From 1 January 2026, more products are expected to fall under the regulation’s scope.
Complying with CBAM requires companies to collect emissions data, engage their suppliers and prepare for taxation. Even if companies are not importing products covered by CBAM, adjustments in market prices for goods and procurement practices could still impact their business.
How to proactively prepare for CBAM now
The CBAM train is steaming ahead, and EU companies importing goods from outside of the EU should take the following steps now to get on board:
- Carry out a CBAM risk assessment to understand the extent to which their business operations are exposed to CBAM compliance risks.
- Assess the scope and origin of imported products by engaging with suppliers and comparing CN codes with the CBAM Annex of affected goods.
- Assess greenhouse gas (GHG) emissions data from the companies they import from.
- Establish processes and organisational accountability to establish a CBAM-compliant GHG reporting system.
- Register as a CBAM declarant and assign their authorised representative.
- Check the price of carbon forecasts on the Emissions Trading System to assess the costs and risks.
- Get familiar with the transitional CBAM registry and the EU reporting template.
How does CBAM work?
Importers of goods from outside the EU should register with national authorities so that they can buy CBAM certificates. During the transitional phase, stakeholders must make quarterly reports with custom declarants for the goods listed under CBAM Annex 1. The information required in these reports relates to the types and numbers of materials and estimates of embedded emissions. Reports can be made in the Transitional Registry.
Tip: As of 1 January 2025, businesses must report embedded emissions using the defined EU methodology.
Under the CBAM, a carbon price will be levied on the import of goods through a carbon certificate. It’s important to note that from 1 January 2026, the quarterly custom declarations only need to be made annually as the certificates will be levied against previous financial year emissions.
From 1 January 2026, if EU companies want to import non-EU goods, they must be authorised declarants. This status can be applied for at the competent authority within each respective EU member state. Once the importer declares their embedded emissions, they exchange the corresponding number of CBAM certificates for that financial year.
Tip: The CBAM only applies partially when importing from countries with their own carbon tax. In such cases, the revenues will be levied by those respective countries, and the amount will be deducted from the required CBAM certificate amount.
Ensuring CBAM Compliance with Emitwise
Above all, companies preparing for the CBAM need trustworthy data on the emissions embedded in their imports. That means building relationships with suppliers, collecting supply chain data, and using that data to evaluate import and procurement practices.
Businesses could decide to purchase CBAM certificates without focusing on emission reductions, but as the price of emissions is set to increase as we approach 2050, delayed climate action will come at a great cost. Additionally, it’s better to remember that the costs aren’t just financial. Emissions-intensive imports will affect organisations’ ability to reach their decarbonisation targets. Businesses could also risk not complying with other regulations, such as CSRD.
One way to get started is to identify suppliers with goods with lower emissions within and outside the European Union. To do so, companies will require credible emissions data and a rigorous due diligence process to make data-driven sustainable procurement decisions.
Businesses will also need to calculate the cost of emissions embedded in imported products by going to the source of these emissions. That means getting closer than ever to suppliers and evaluating the supply chain’s environmental impact. However, a lack of primary data on emissions is a common stumbling block for companies.
With CBAM Engage, Emitwise is streamlining supplier data collection for companies needing to comply with CBAM. Suppliers will receive comprehensive training and benefit from a user-friendly interface to submit their data.
Emitwise’s platform supports businesses with CBAM compliance by collecting precise data from their suppliers, performing robust validation checks to ensure data accuracy and streamlining the reporting process with ready-to-submit files.
Decarbonising supply chains is a marathon, but the planet needs us to sprint. Taking action now will enable businesses to thrive in a world where competitiveness can be earned by complying with environmental regulations and being a leader in decarbonisation.
Change is coming fast, so stay one step ahead with Emitwise.
