The European Union is on a mission to reduce greenhouse gas emissions by at least 55% by 2030 and strives to be climate-neutral by 2050. This has led to new rules and regulations affecting various sectors like transport, industry, and production. EU member states now need to consider how their activities beyond borders impact emissions. One of these regulations is the Carbon Border Adjustment Mechanism (CBAM), which entered a transitional phase as of 1 October 2023.
What is the Carbon Border Adjustment Mechanism?
CBAM is a regulation that places a price on carbon-intensive products, such as cement, iron and steel, aluminum, fertilisers, electricity, and hydrogen, imported into the European Union. The goal is to prevent carbon leakage, which occurs when companies based in the EU move carbon-intensive production abroad to countries with less stringent climate policies, or when EU products get replaced by more carbon-intensive imports. CBAM is the EU’s tool to set a fair price on carbon emitted during the production of these carbon-intensive goods that enter the EU, encouraging cleaner production outside the EU. CBAM will ensure that the carbon price of imports is equivalent to the carbon price of domestic production.
What does it mean for the industries?
EU importers of cement, iron and steel, aluminum, fertilisers, electricity, and hydrogen, now need to look at the greenhouse gas emissions embedded in their imports. The CBAM has already entered its transitional phase as of 1 October 2023, which requires reporting emissions, with full CBAM implementation expected on 1 January 2026. Importers must gather emission data from suppliers and submit emission reports to the CBAM Transitional Registry by 31 January 2024. After the regulation is fully in force in 2026, importers must declare each year the quantity of goods imported into the EU in the previous year and their embedded greenhouse gases. They will then surrender the corresponding number of CBAM certificates.
How can businesses ensure CBAM compliance?
Ensuring CBAM compliance involves examining the supply chain to identify affected products, their origins, and suppliers. It’s crucial to have clear visibility and transparency, as incorrect reporting during the transition period could lead to financial penalties or difficulties in getting CBAM authorization. Building close relationships and open communication with suppliers is vital to make them aware of CBAM requirements and obtain accurate data. Additionally, having internal systems for data gathering, reporting, and following standard operating procedures is essential for a smooth transition to CBAM compliance.
We will keep you informed about any updates on the Carbon Border Adjustment Mechanism. Feel free to contact us if you have any questions.
