Webinar Write-Up: Supplying the goods in a time of CBAM

In our recent webinar about ensuring preparedness for the Carbon Border Adjustment Mechanism (CBAM), we discussed how there are two sides to CBAM success: the importer side and the supplier side. By putting the right processes in place to get the necessary carbon accounting data, the whole supply chain can work harmoniously to ensure CBAM compliance and positive business outcomes for all involved.

Here are all the insights, straight from our experts, on what you need to do to achieve CBAM compliance.

Does the CBAM apply to you?

The CBAM applies to importers based in the EU and non-EU companies exporting to customers within the EU that work with products covered by the regulation. Companies based in the EU are responsible for reporting under the CBAM, but they won’t be able to do so without the adequate flow of information between them and their suppliers.

This regulation currently applies to steel, iron, cement, aluminium, fertilisers, electricity and hydrogen. To identify which specific products apply to the CBAM, check the Regulation’s Annex, and see the Combined Nomenclature (CN) codes that apply to those products.

What is the CBAM?

The CBAM is a levy on the carbon emissions associated with goods imported into the EU. EU-based companies will need to report the direct and indirect emissions of each product procured from a non-EU-based company. Suppliers to EU-based companies will also want to assess their products to see if the CBAM applies to them so they can better prepare for their buyers’ questions.

Currently, the CBAM is in a pilot phase. In 2026, companies will need to purchase CBAM certificates for the imported emissions, the price of which will be based on the Emissions Trading System. However, if carbon taxes have already been levied on a given product in the country of origin, that will be deducted from the cost. By then, for companies to import goods under the CBAM, they will also need to be registered declarant. They should apply for that now to avoid getting caught out in 2026.

Penalties and Controls

EU companies must engage their suppliers to obtain product-level carbon emissions data. If companies cannot report emissions under the CBAM or misreport them, they can be fined €10-50 per tonne of unreported emissions. EU relevant authorities in each member state will be performing checks of CBAM reports and are entitled to follow up on anything they deem worth investigating, ask for more information, make changes, or, in some cases, implement fines.

Reporting

The first CBAM report was due at the end of January 2024. The pilot phase of the CBAM runs until the end of 2025 as the European Commission reviews feedback. As a result of this, some revisions may also occur in 2026, such as expanding the scope of the CBAM to cover additional products like plastics. In the first reporting rounds, companies can use the EU’s default values for emissions reporting. However, in July 2024, companies must start using values based on actual supplier emissions data.

Why the CBAM?

The EU sees the CBAM as an essential part of its Fit for 55 targets: 55% net greenhouse gas emissions reduction by 2030 and climate neutrality by 2050. The EU is also looking to combat carbon leakage, which involves companies relocating manufacturing or supply chains to countries with carbon taxes that are more lenient than in the EU, undermining the EU’s sustainability goals. The CBAM aims to level the playing field between EU and non-EU companies.

Ace CBAM compliance in three steps:

Get comfortable engaging with your supply chain.

Companies need to engage with suppliers to quickly identify the source of their emissions covered by CBAM, particularly with Tier 1 suppliers or high-emissions risk suppliers. Good relationships with suppliers will help companies get detailed information on the emissions related to the production of their goods.

Establish cross-company collaboration

CBAM reporting is becoming a company-wide challenge. Sustainability teams need to start working with procurement, finance, and tax departments, as well as with the C-suite, to drive company-wide buy-in.

Build CBAM into your procurement Processes

CBAM will likely affect procurement processes and add additional costs and factors. Companies should consider making it mandatory for suppliers to provide yearly direct and indirect emissions of their products.

Shining a Spotlight on Scope 3 Emissions for CBAM Compliance

CBAM compliance comes with several benefits for businesses. It can:

• Strengthen the resilience of their supply chains and overall balance sheet.
• Identify opportunities to import less carbon-intensive products.
• Increase the granularity of the data they have available to them.
• Improve their engagement and their relationships with suppliers.
• Lower their tax bill.

The CBAM requires some leg work from affected companies to access these benefits, such as:

• Build an understanding of their value chain.
• Gather details on what they import, from which suppliers, and where those suppliers are based.
• Collect and aggregate this data and the associated emissions into the appropriate reporting format.

Companies should identify suppliers on a risk basis and begin engaging with them to collect the necessary data. That part is obvious, but the difficulty lies in the fact that many suppliers haven’t started collecting emissions data and will need support to begin doing so. Without their data, companies won’t be able to comply with the CBAM.

How can we Support Suppliers?

Emitwise suggests the following actions for companies to get their CBAM data ducks in a row and for their suppliers to share the right data:

Firstly, companies need to understand the origin and scope of the products they import. Emitwise’s CBAM Engage platform supports suppliers in submitting their spend data to map out their emissions and get them started on their emission reduction journey. Comprehensive training and supported is provided to suppliers to facilitate data collection.

Secondly, once Emitwise’s customers have accurate and auditable data with a clear list of business areas that may fall under the tax burden, companies can leverage Emitwise’s compliance tool to disclose the direct and indirect emissions of their imports every year. With ready-to-submit detailed reports generated by CBAM Engage, reporting is automated and the compliance process is simplified.

Lastly, Emitwise will also help companies work with immature suppliers and start their journey, eventually working towards using accurate primary emissions data based on the actual emissions involved in producing imported goods. Suppliers will benefit from a library of educational resources including webinars, video tutorials, step-by-step guides and FAQs, as well as the opportunity to reach out to Emitwise’s CBAM compliance experts to ensure they can confidently comply with reporting requirements.

By reducing scope 3 emissions, businesses can reduce their overall emissions and tax bill, while ensuring CBAM compliance.

CBAM FAQ

What will the global impact of CBAM be?

At a conceptual level, the CBAM drives conversations across borders at the highest levels in the US, China, and other major economies. Countries are looking at how the world will look when there are trade barriers based on greenhouse gas emissions. Whether they’re in Europe or not, any global company will need to start meeting the requirements of European regulators. Even though the US Securities and Exchange Commission has said that scope 3 emissions disclosures will not be mandatory for the time being in the US, any US company exporting to the EU will still be significantly impacted by the CBAM. Many other countries will likely follow in the EU’s footsteps. The CBAM is, therefore, global in scope, and all large companies should pay close attention to its requirements.

How can companies prepare for the ‘auditability’ requirements under the CBAM?

When a reporting company submits its CBAM data to the EU Information System, it will be verified by the European Commission for accuracy. It’s expected that an independent third party verifies any data submitted by suppliers. This auditability requirement is a common trend across sustainability and carbon reporting and is fast becoming an industry best practice. Carbon reporting must be in line, in terms of accuracy, with financial reporting as auditing processes become increasingly stringent.

What’s the best company governance structure for CBAM compliance?

Many companies are still working out what departments should best manage CBAM. One might conclude it applies primarily to tax departments. Still, a lot more information is required concerning sustainability, supply chain, and procurement, which other departments are most likely to have more success with. The most successful companies recognise compliance requires collaboration and implement a collaborative approach across departments. However, a specific team will likely be needed to manage the CBAM and be made accountable for it.

What’s the difference between simple and complex goods under the CBAM?

Products are labelled simple or complex under the CBAM. Simple goods are products or goods that are produced from input materials with zero embedded emissions. Therefore, the only emissions to be accounted for are those generated in producing that given good. Complex goods are goods where the necessary input materials also fall under the CBAM. For example, cement is a complex good as cement clinker is under the CBAM, so its emissions must also be included in the final cement product emissions.

Does the regulation require paying emissions taxes on goods and reporting emissions on products?

Companies are required to report their product emissions to the CBAM Transitional Registry, an online platform for EU declarants. The easiest way is to log in and manually enter data. Alternatively, the EU has created a template that can be filled in, uploaded and used as a survey to send to suppliers. Product-level CBAM data needs to be reported to that registry, where the carbon tax will be calculated based on the Emissions Trading System price.

What support should companies look for with CBAM compliance?

This is new legislation, and the legislation itself, along with the tools, frameworks, and customers, is evolving. The best thing is to find a partner who can grow with you and support you throughout the journey, wherever you are. Furthermore, it’s good to find the right partner for your sector. Managing emissions in the financial sector is different from managing emissions in manufacturing. Finally, companies should do their due diligence if looking for providers. Some companies are very sure of what they want, and others are still figuring things out. The latter camp should take thorough steps to find the right solution. The best solution providers should be the first to be transparent and tell you that they aren’t necessarily the most appropriate partner for you or your industry.

Watch the on-demand webinar here.