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The Carbon Border Adjustment Mechanism (CBAM) is a cornerstone of the EU's strategy to combat climate change by leveling the carbon costs of imported goods with those produced within the EU. This mechanism, which places a carbon price on certain imports, aims to curb “carbon leakage” and promote fairer, climate-conscious trade practices.
As CBAM evolves, 2025 will be the last year of the transitional phase and bring significant updates, including stricter reporting obligations and expanded tools for non-EU operators. This article highlights these upcoming changes and provides practical steps for companies to navigate them.
1. A Look Back at 2024: CBAM’s Initial Rollout
The Pilot Phase
CBAM was launched in 2024, focusing on emission-intensive sectors such as cement, steel, aluminum, fertilizers, and electricity. The initial requirements included emissions tracking and reporting for certain imported products, with a special focus on direct and indirect emissions data.
Challenges and Adjustments
In this first year, many companies faced challenges with emissions data collection and adapting to CBAM’s new framework. Tracking accurate emissions from international suppliers proved difficult for companies without digitalized reporting systems, and understanding the regulatory scope required additional resources.
Lessons Learned from 2024
The rollout underscored the need for accurate data and efficient reporting tools. Businesses recognized the benefits of investing in reliable data management systems to meet compliance requirements, a foundational step as they prepare for the more demanding standards coming in 2025.
2. What’s Changing in CBAM 2025: New Requirements for Businesses
Exclusive Use of the EU Methodology for Emission Calculation
From 1 January 2025, only the EU’s prescribed methodology will be accepted for calculation the embedded emissions of CBAM goods. This requirement aims to standardize emission data and ensure consistency across sectors. Additionally, for complex goods, estimates—including default values—may only be used if they account for less than 20% of the product's total embedded emissions. Default values, published by the European Commission on 22 December 2023 based on research by the EU’s Joint Research Centre (JRC), will assist in these cases.
New Portal Section in the CBAM Registry for Non-EU Operators
Starting in 2025, a new CBAM Registry portal will support non-EU installation operators in uploading emissions data. This approach means operators won’t need to submit emissions data separately to each declarant, simplifying reporting. It also helps safeguard business-sensitive information. Reporting declarants can then auto-populate their CBAM reports directly from this portal. The exact workings of this system are still being clarified, the EU should publish a delegate act soon.
Application for ‘Authorised CBAM Declarant’ Status
From 2025, CBAM declarants can apply for “authorised CBAM declarant” status via the CBAM Registry. The National Competent Authority in the declarant’s EU Member State will process applications. This status will be mandatory from 2026 for CBAM goods entering the EU customs territory. Applying early can help companies secure compliance and prepare in advance.
Review and Transition Planning for CBAM 2025 and Beyond
Before 2026, the EU will review CBAM's function during its transitional phase. The review will assess CBAM’s effectiveness and consider expanding its product scope. The EU will publish a report with a phased timeline for product inclusion before 2030.
Global Impact of CBAM
The CBAM has already generated significant attention worldwide. Countries near the EU are expected to implement their own CBAM mechanisms, modeled after the EU’s approach. Finland and the UK are already detailing their plans, while other nations consider carbon pricing schemes to retain carbon revenue that would otherwise go to the EU.
3. CBAM 2025: Impact on Global Supply Chains and Trade Partners
Effects on Non-EU Suppliers
These new requirements will affect non-EU suppliers, especially those with high emissions or limited data transparency. Suppliers may face additional compliance costs to meet EU standards, and companies may need to adjust supply chains to avoid disruptions in goods flow. Businesses importing goods from outside the EU should prepare for these compliance demands and work closely with their suppliers to ensure readiness.
Technology and Compliance Solutions
Meeting the new reporting standards will require accurate, efficient data tracking and reporting. The CBAM Reporting Manager from SupplyOn is one tool designed to streamline compliance for businesses facing CBAM’s complex requirements. This digital platform provides a centralized system for tracking emissions, managing data, and meeting CBAM’s stringent reporting obligations. By using the Reporting Manager, companies can ensure precise emissions data, reduce administrative work, and simplify data sharing with EU reporting authorities. Tools like SupplyOn’s solution can help businesses stay on top of evolving requirements while protecting confidential information in a secure, compliant way.
Integration with ESG Strategies
CBAM compliance is increasingly integrated into Environmental, Social, and Governance (ESG) strategies. By aligning CBAM with broader ESG initiatives, companies can enhance transparency, build investor confidence, and show a proactive commitment to environmental stewardship. A strong ESG strategy, incorporating CBAM reporting, positions companies as climate-conscious leaders in their fields.
Conclusion
The CBAM changes in 2025 will bring new challenges and opportunities for businesses in the EU and beyond. Stricter reporting requirements and advanced digital tools are reshaping compliance standards. As reporting obligations increase, companies need to adapt processes, gather precise emissions data, and streamline operations to meet CBAM standards.
For businesses navigating these new requirements, the CBAM Reporting Manager from SupplyOn is a valuable tool. It helps manage emissions data accurately, ensure compliance, and meet EU reporting standards efficiently. With the right tools and early preparation, companies can meet regulatory demands while gaining a competitive edge in a carbon-conscious market.
Preparing now will help companies navigate CBAM complexities, minimize risks, and position themselves as forward-thinking, responsible leaders. The 2025 changes present an opportunity to reinforce ESG commitments, contribute to global climate objectives, and prepare for the full implementation phase of CBAM.
Managing carbon footprint data is essential for modern businesses aiming to meet sustainability goals and regulatory demands. In sectors like automotive, where intricate supply chains are the norm, mastering Product Carbon Footprint (PCF) exchange is not just beneficial—it’s essential for achieving substantial environmental progress and better-informed decision-making.
However, collecting accurate PCF data can be challenging due to complex supplier networks and varying data formats. This post outlines three key strategies to facilitate a successful PCF exchange, ensuring more effective sustainability practices.
Strategy 1: Engage and Collaborate with Suppliers
Effective supplier engagement is the cornerstone of a successful PCF exchange. Creating a collaborative environment ensures smoother data collection and strengthens relationships throughout the supply chain.
Early Communication
Laying the groundwork for PCF data exchange starts with early and transparent communication. Informing suppliers about your PCF data requirements and sustainability targets well ahead of time can help establish a shared understanding and reduce potential roadblocks. Early engagement also allows suppliers to prepare their processes to meet your expectations, leading to smoother data collection.
Practical ways to establish early communication include virtual workshops, documentation on data formats, and detailed guidelines for submission. These measures create clarity and set the stage for more efficient collaboration.
Building Strong Relationships
A successful PCF exchange thrives on strong, trust-based relationships with suppliers. Such relationships encourage open data sharing and create a sense of mutual investment in the process. To build this trust, consider hosting regular check-ins, co-creating sustainability initiatives, and offering feedback on data submissions. When suppliers understand that their efforts contribute to a larger mission, they’re more likely to participate actively.
Supporting Suppliers
While large suppliers might have the infrastructure to handle complex data reporting, smaller suppliers may need more support. Providing resources like training sessions, educational materials, or Q&A forums can empower them to meet PCF requirements effectively. A well-supported supplier network leads to more reliable data collection and greater buy-in across the supply chain.
Strategy 2: Leverage Technology with a Dedicated PCF Exchange Tool
Leveraging the right technology can transform how PCF data is collected, managed, and shared. Implementing a dedicated PCF exchange tool makes it easier to maintain consistency and streamline processes.
The Role of Technology
Technology is indispensable for managing PCF data collection and exchange at scale. A dedicated PCF exchange tool can streamline the process, ensuring that data collection is efficient, consistent, and accurate. Such tools centralize data management and automate aspects of the process, tackling issues like data inconsistency and collaboration barriers.
Digital platforms simplify data requests, track responses, and allow for automated validation processes, freeing up your team to focus on analyzing the data instead of chasing it.
Features to Look For
To make the most of a PCF exchange tool, ensure it includes the following features:
Comprehensive Data Queries: The ability to request detailed PCF data for multiple components and suppliers, whether for existing materials or new tenders.
Efficient Monitoring and Communication: Built-in features to track, accept, or reject data submissions and communicate directly with suppliers to resolve issues quickly.
Seamless Integration with API Interfaces: Integration capabilities that allow data to flow into existing enterprise systems, minimizing manual input and errors.
Configurable Query Templates: Customizable templates for data requests simplify the collection process and ensure that data formats are standardized.
Interoperability: A tool that can connect with networks like Catena-X is valuable for staying aligned with industry standards and future regulatory changes.
Benefits
The right technology not only saves time but also improves data accuracy and enables better decision-making. By automating routine tasks and centralizing data collection, companies can use PCF data effectively to inform sustainability strategies and drive decarbonization efforts.
Strategy 3: Ensure Data Quality and Drive Continuous Improvement
Ensuring data quality is key to a successful PCF exchange, as it supports reliable sustainability reporting and better decision-making. Continuous improvement efforts further reinforce these outcomes.
Implement Verification Processes
Having a verification process in place is essential to maintain data integrity. Automated checks combined with manual reviews ensure that the data you receive is both accurate and reliable. Implementing these processes helps catch inconsistencies early and supports compliance with sustainability standards.
Monitor Progress
Regularly tracking PCF data against your sustainability goals is key to maintaining momentum. Analytics tools can help identify trends, highlight problem areas, and offer insights for optimizing supply chain practices. Regular monitoring also provides a way to measure the effectiveness of your sustainability strategy over time, ensuring that you remain adaptable.
Foster a Culture of Sustainability
Success in PCF exchange goes beyond technology and data; it’s about embedding a culture of sustainability within your organization. Regular workshops, sustainability training, and the active involvement of employees and suppliers keep everyone informed and motivated. Recognizing suppliers who meet or exceed data expectations can further incentivize participation and align your supply chain with your environmental goals.
Adapt and Evolve
Staying up-to-date with changes in regulations and industry standards is critical for maintaining a compliant and future-proof strategy. Regularly revisiting and refining your approach helps ensure your PCF exchange process continues to meet both current and emerging demands.
Conclusion
Implementing a successful PCF exchange requires strategic supplier engagement, the use of reliable technology, and a focus on data quality. By following these strategies, your organization can overcome challenges in PCF data collection and leverage accurate insights to drive meaningful decarbonization efforts.
The EU’s Carbon Border Adjustment Mechanism (CBAM) is reshaping global trade, particularly for companies importing goods like steel, cement, and aluminum into the EU. CBAM, designed to curb carbon leakage, introduces a new set of compliance requirements, posing significant challenges for importers. These challenges center around carbon reporting, administrative burdens, and potential supply chain disruptions. Understanding and addressing these hurdles will be key to maintaining smooth operations in this new environment.
1. Complexity of Carbon Reporting Requirements
CBAM aims to create a level playing field by ensuring that imported goods carry a carbon cost similar to those produced within the EU. However, this introduces complexity for importers, who are now responsible for accurately tracking and reporting the carbon emissions associated with their goods.
Obtaining consistent and reliable emissions data from non-EU suppliers can be particularly difficult, as environmental regulations and reporting standards vary across regions. Verifying the accuracy of third-party emissions data can also be time-consuming, creating potential bottlenecks in the import process. Incomplete or inaccurate data increases the risk of customs delays and non-compliance penalties.
To address this challenge, companies are focusing on enhancing communication with suppliers about emissions reporting. Many are also turning to digital tools to streamline the tracking and verification of carbon data, ensuring that information is accurate and compliant with EU standards. These measures help reduce delays and ensure smoother customs processing.
2. Increased Administrative Burden on Importers
CBAM introduces an additional layer of paperwork to the customs process, significantly increasing the administrative burden on importers. Beyond the standard declarations of goods’ nature and value, companies must now also report their associated carbon emissions. This creates added complexity for businesses already managing a range of regulatory requirements.
Integrating CBAM reporting into existing customs workflows can be particularly challenging. Without proper management, this additional documentation risks slowing down operations and increasing the likelihood of submission errors. The larger the volume of paperwork, the greater the chances of mistakes or omissions, leading to delays at customs.
To streamline this process, many companies are automating parts of their documentation workflows, using software tools that incorporate carbon emissions reporting into existing customs procedures. Additionally, investing in training for customs teams on CBAM requirements helps minimize errors and improves overall efficiency.
3. Risk of Supply Chain Disruptions
The introduction of new CBAM documentation requirements also poses a significant risk of supply chain disruptions. Customs clearance can be delayed if the required paperwork is incomplete or inaccurate, causing goods to be held up at the border. In industries like steel, cement, or aluminum, where timely delivery is essential, these delays can have a considerable impact on overall business performance.
Moreover, as CBAM becomes fully operational, customs agencies will need time to adapt to the new compliance standards, potentially creating bottlenecks at key trade hubs. Non-compliance with CBAM regulations could result in financial penalties, missed delivery deadlines, and, in the worst case, loss of key contracts.
To mitigate these risks, companies are prioritizing the completeness and accuracy of their CBAM-related documentation well before goods reach customs. Developing contingency plans with logistics partners also helps ensure business continuity in case of delays. Collaborating with customs experts can provide additional support in navigating the evolving compliance landscape, ensuring smoother operations under the new regulations.
Conclusion: Preparing for Success Under CBAM
While CBAM introduces new challenges for importers, these challenges can be effectively managed with the right strategies. By improving carbon data reporting, reducing administrative burdens, and addressing supply chain risks, companies can navigate the complexities of CBAM compliance smoothly. Early preparation and investment in the necessary tools and expertise will not only help businesses avoid penalties but also provide a competitive edge in the transition toward a more sustainable global trade environment.
The European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM) is more than just a regulatory tool—it’s a game changer for global trade, particularly for non-EU producers. As part of the EU’s broader climate strategy, CBAM aims to reduce carbon leakage by leveling the playing field between EU companies adhering to strict carbon regulations and foreign companies exporting to the EU.
For non-EU producers, especially those in carbon-intensive sectors like steel, cement, and electricity, CBAM introduces a new set of challenges. However, alongside these challenges lie significant opportunities for those who are prepared to adapt and align with ESG (Environmental, Social, and Governance) standards. In this article, we’ll dive into the key impacts of CBAM on non-EU producers and explore strategies for navigating this new landscape.
Immediate CBAM Impacts on Non-EU Producers
As CBAM is rolled out, non-EU producers face immediate changes in how they do business with the European market. These changes can be categorized into three main areas: regulatory pressure, cost implications, and market access.
New Regulatory Pressures
For many non-EU producers, CBAM means navigating a new set of carbon emission reporting requirements. The EU will expect exporters to monitor and accurately report their carbon footprint, which could require significant adjustments in operations. While this may seem like an administrative burden, it’s critical for staying competitive in the EU market. Companies will need to adopt transparent carbon accounting systems and potentially invest in third-party verification to ensure compliance.
Cost Implications
One of the most direct impacts of CBAM is the financial burden it places on EU importers. The mechanism essentially places a price on carbon for goods imported into the EU, meaning producers with high carbon footprints could see a rise in costs when exporting to the region. These additional costs could make it more difficult for Non-EU producers to compete with EU-based companies that are already complying with strict emission standards. For producers operating on tight margins, this added layer of expense could be a significant challenge.
Market Access
For non-EU producers who cannot meet the carbon reporting requirements or those with high emission levels, the biggest risk is reduced market access. The EU is one of the largest trading blocs in the world, and for many companies, losing access to that market would be devastating. Non-compliance could result in lost contracts or partnerships, especially as EU-based buyers increasingly prioritize sustainable and low-carbon products.
ESG Compliance: A Critical Response for Non-EU Producers
To navigate the challenges posed by CBAM, non-EU producers need to focus on ESG compliance as a key strategy. Incorporating ESG principles, particularly environmental sustainability, allows these companies to better align with CBAM requirements and position themselves as leaders in responsible business practices. One of the first steps is adopting international environmental standards like ISO 14001, which offers a framework for measuring and improving environmental performance. Compliance with such standards not only ensures regulatory alignment but also strengthens a company's reputation in an increasingly ESG-conscious market.
Furthermore, prioritizing ESG initiatives enhances a company's appeal to both investors and buyers who are placing more value on sustainability. Companies that take proactive steps to improve their ESG scores can differentiate themselves from competitors and potentially unlock new business opportunities. Embracing sustainability is no longer just about meeting regulatory requirements—it's about securing a competitive edge in a rapidly evolving global market. By focusing on ESG, non-EU producers can turn CBAM from a challenge into a strategic advantage.
Strategies for Non-EU Producers to Adapt to CBAM
With ESG principles as a guiding framework, non-EU producers can take practical steps to ensure they remain competitive and compliant under CBAM. Here are a few key strategies:
Carbon Footprint Measurement
A critical part of adapting to CBAM is accurately measuring and reporting carbon emissions. Non-EU producers need to establish reliable carbon accounting systems that track emissions throughout their production processes. This includes direct emissions from production as well as indirect emissions from energy use. Transparent reporting not only helps meet CBAM regulations but also provides valuable insights that can guide further sustainability efforts.
Investing in Green Technologies
One of the most effective ways to lower a company’s carbon footprint is to invest in green technologies. Whether through renewable energy, energy efficiency measures, or carbon capture solutions, non-EU producers have a range of options to reduce emissions. While these investments can require significant upfront costs, they often lead to long-term savings and enhanced competitiveness. Moreover, companies that adopt these technologies early will be better positioned as global markets continue to move towards sustainability.
Supply Chain Engagement
For many non-EU producers, emissions don’t just come from their own operations—they come from their supply chain. Engaging with suppliers to reduce emissions throughout the value chain is a crucial part of CBAM compliance. This may involve setting sustainability standards for suppliers, encouraging the use of low-carbon materials, or partnering on carbon reduction initiatives. Collaborative efforts within the supply chain not only help with compliance but also foster stronger relationships and improve overall efficiency.
Long-Term Benefits for Non-EU Producers
While CBAM presents immediate challenges, there are also long-term benefits for non-EU producers that take a proactive approach to ESG compliance. Beyond simply maintaining market access, these companies can position themselves as leaders in sustainability.
Sustainability as a Market Differentiator
As sustainability becomes an increasingly important factor in purchasing decisions, non-EU producers with strong ESG credentials can use this as a key differentiator. Companies that prioritize low-carbon production and transparent reporting will likely see increased demand from EU buyers as well as other global markets that are shifting towards green trade policies.
Access to ESG-focused Investors
Institutional investors are placing greater emphasis on sustainability, and companies that can demonstrate strong ESG performance are more likely to attract investment. For non-EU producers, aligning with ESG standards doesn’t just open doors to new customers—it also broadens access to capital from ESG-focused investors who are looking for long-term, sustainable growth opportunities.
Global Trade Opportunities
Finally, the global push towards carbon neutrality is gaining momentum beyond the EU. Countries like the U.S. and China are also exploring carbon pricing mechanisms and stricter environmental regulations. Non-EU producers that adapt early to CBAM will be better prepared to navigate future regulations and take advantage of new market opportunities that prioritize low-carbon and sustainable trade.
Conclusion: CBAM as a Catalyst for Global ESG Progress
The EU’s Carbon Border Adjustment Mechanism may seem like a formidable challenge for non-EU producers, but it can also be a powerful catalyst for change. By embracing ESG principles and investing in sustainability, non-EU producers can not only meet CBAM’s requirements but also unlock new opportunities for growth and differentiation in a global market increasingly defined by low-carbon policies.
The future of trade is green, and for those willing to adapt, CBAM can serve as a springboard toward a more sustainable and profitable future.
The European Union's Carbon Border Adjustment Mechanism (CBAM) has the influence to reshape global supply chains, with significant implications for businesses operating across borders. As a key component of the EU's broader climate strategy, CBAM aims to prevent carbon leakage and promote global decarbonization. For companies sourcing or exporting goods, understanding CBAM’s ripple effects is essential for maintaining competitive and resilient supply chains.
CBAM in Context
In brief, CBAM imposes a carbon price on certain imports into the EU, ensuring that products subject to less stringent climate regulations abroad do not undermine the EU’s climate goals. Targeting carbon-intensive sectors such as steel, cement, and electricity, CBAM levels the playing field between EU producers and their international competitors.
Direct Impacts of CBAM on Global Supply Chains
CBAM’s implementation brings about immediate and tangible effects on global supply chains. For non-EU exporters, the most obvious impact is the increase in costs. As CBAM imposes a carbon tax on imports based on their embedded carbon emissions, industries with high carbon footprints—like aluminum, fertilizers, and electricity—will face significantly higher costs when exporting to the EU. This increase is likely to be passed down the supply chain, raising prices for end consumers and potentially altering demand patterns.
Moreover, CBAM is forcing companies to rethink their sourcing strategies and supplier relationships. Businesses reliant on carbon-intensive imports may start seeking suppliers with lower carbon footprints to avoid CBAM-related costs. This shift can be particularly challenging for industries deeply entrenched in global supply networks, where switching suppliers isn't as simple as it sounds. Already, some companies are exploring options to relocate production closer to end markets or investing in cleaner technologies to mitigate CBAM’s financial impact.
Indirect Consequences on Global Trade
Beyond the direct financial implications, CBAM is likely to trigger a series of indirect effects on global trade. One of the most significant concerns is its impact on trade competitiveness. CBAM could effectively level the playing field between EU companies, which are already subject to stringent carbon regulations, and their non-EU counterparts. However, this might provoke retaliatory measures from non-EU countries, who could impose their own trade barriers or carbon tariffs, potentially leading to trade disputes.
On the flip side, CBAM could serve as a catalyst for global decarbonization efforts. By putting a price on carbon emissions, CBAM encourages companies worldwide to adopt greener practices and technologies. This ripple effect might push other regions to implement similar mechanisms, fostering a global shift toward more sustainable trade practices. While this transition may be bumpy, the long-term benefits of a lower-carbon global economy could outweigh the initial disruptions.
Strategic Adjustments for Businesses
For businesses affected by CBAM's complexities, ensuring ESG compliance is essential. Companies must prioritize transparency in carbon footprint reporting and ensure their entire supply chain aligns with CBAM requirements. This could involve investing in better carbon tracking technologies or working with suppliers to reduce emissions at every stage.
Rethinking supply chain resilience is another key strategy. As CBAM reshapes global trade, businesses need to adapt to mitigate risks. This might mean diversifying suppliers, exploring new markets, or relocating production closer to consumers. For example, a company relying on high-carbon steel from non-EU countries might switch to lower-carbon alternatives within the EU, reducing CBAM liabilities.
The Future Outlook for Global Supply Chains
Looking ahead, CBAM could have a profound impact on global supply chains. As it becomes fully operational, trade patterns may shift. Companies are likely to prioritize low-carbon suppliers and regions. This shift could alter global economic power dynamics, favoring countries that have embraced decarbonization.
CBAM’s influence might also inspire similar measures in other major economies. This could speed up the global move towards a low-carbon economy. However, businesses that don't adapt could face higher costs and lose out to more agile competitors.
In conclusion, CBAM presents challenges but also opportunities. Forward-thinking businesses can strengthen their ESG strategies and build more resilient supply chains. Those who assess and adjust their supply chains proactively will be better positioned to thrive in a CBAM-impacted world.
Conclusion
CBAM is set to have a far-reaching impact on global supply chains, reshaping how companies source, produce, and trade goods. By increasing costs for carbon-intensive imports and encouraging a shift toward greener practices, CBAM is driving a new era of sustainable trade. For businesses, the key to navigating this change lies in enhancing ESG compliance and rethinking supply chain resilience. Those who act now to align with CBAM’s requirements will not only avoid potential pitfalls but also gain a competitive edge in an increasingly carbon-conscious market.
The European Union is taking big steps to combat climate change, and one of the most significant moves is the Carbon Border Adjustment Mechanism, or CBAM. If you’re in purchasing or operations at a small business, this term has probably crossed your radar recently. But what does it really mean for you and your company? And, more importantly, how should you prepare?
In this article, we’ll break down what CBAM is, explore how it might impact small businesses like yours, and discuss some practical steps you can take to navigate this new landscape. Let's dive in.
What is CBAM? A Refresher for Industry Professionals
CBAM is the EU’s latest tool to ensure that its ambitious climate goals aren’t undercut by cheaper, carbon-intensive imports. Essentially, it’s a carbon tariff on imports from countries with less stringent environmental regulations. The idea is to level the playing field, so European businesses that adhere to strict emissions standards aren’t unfairly disadvantaged.
CBAM will be introduced gradually, with the reporting obligations having already begun in 2023 and to be fully implemented by 2026. For small businesses, this timeline means there’s still some time to prepare—but the clock is ticking.
Direct Impacts on Small Businesses: The Immediate Effects
As CBAM comes into play, small businesses can expect to feel its impact in several ways, particularly in the areas of cost and supply chain management. Understanding these immediate effects is important for navigating this new regulatory landscape.
Cost Implications
One of the most direct ways CBAM will affect small businesses is through increased costs. If your business relies on importing materials or products from outside the EU, you might see a rise in costs as those imports are subject to carbon tariffs. This could be especially significant in industries like manufacturing, chemicals, and metals, where carbon-intensive processes are common.
For a small business, even a modest increase in costs can be a big deal. Margins are often tighter, and there’s less flexibility to absorb these additional expenses. You might find yourself facing tough decisions about whether to pass these costs on to customers, renegotiate supplier contracts, or even rethink your supply chain altogether.
Supply Chain Considerations
Speaking of supply chains, CBAM could also introduce new complexities here. Many small businesses operate on just-in-time models, relying on steady and predictable flows of goods from suppliers. CBAM introduces a new variable into this equation—carbon tariffs that could disrupt this balance.
You might need to start looking at your supply chain with fresh eyes. Are there opportunities to source materials from within the EU to avoid these tariffs? Could you work with your suppliers to improve their carbon footprints, thereby reducing the potential impact of CBAM? These are the kinds of questions that small businesses will need to deal with sooner rather than later.
Indirect Impacts: Beyond the Bottom Line
While the direct effects of CBAM are significant, there are also indirect impacts that small businesses need to consider. These can influence everything from market positioning to consumer preferences, shaping the broader competitive landscape.
Market Competitiveness
Another layer of complexity is the impact CBAM might have on your market position. Larger corporations often have more resources to adapt quickly to new regulations. They might invest in new technologies, switch to more sustainable suppliers, or find other ways to mitigate the impact of CBAM faster than smaller companies can.
This doesn’t necessarily mean that small businesses are destined to be left behind. However, it does mean that you’ll need to be strategic. Focusing on sustainability, for instance, can be a powerful way to differentiate your brand and maintain a competitive edge. Customers are increasingly looking for environmentally responsible products and services, and this trend is likely to accelerate as CBAM comes into full force.
Shifts in Consumer Preferences
On that note, let’s talk about consumers. CBAM isn’t just about regulations and tariffs; it’s also about shifting mindsets. As the EU pushes for greener practices, consumers are becoming more aware to the environmental impact of their purchases. They want to know where products come from, how they’re made, and what their carbon footprints look like.
For small businesses, this can be both a challenge and an opportunity. On one hand, meeting these expectations might require changes in how you operate. On the other hand, if you can position your business as a leader in sustainability, you could tap into a growing market of eco-conscious consumers. The key is to be transparent about your efforts and to communicate the steps you’re taking to reduce your carbon footprint.
Preparing for CBAM: Practical Steps for Small Businesses
With an understanding of both the direct and indirect impacts of CBAM, it’s time to think about how small businesses can prepare. Proactive planning is essential to turn potential challenges into opportunities.
Carbon Footprint Reduction
So, what can you do to get ahead of the game? First, it’s essential to understand your own carbon footprint. This might seem daunting, but there are tools and resources available to help you assess where your business stands. Once you have a clearer picture, you can start exploring ways to reduce emissions—whether that’s by improving energy efficiency, switching to renewable energy sources, or finding more sustainable materials.
Reducing your carbon footprint isn’t just about compliance; it’s also about positioning your business for the future. The more you can do now to lower your emissions, the better prepared you’ll be for CBAM and any other regulations that might come down the line.
Supply Chain Engagement
Another critical area is your supply chain. Engage with your suppliers early and often. Find out what steps they’re taking to reduce their carbon emissions and explore ways you can work together to ensure compliance with CBAM. This might involve renegotiating contracts, finding new suppliers, or investing in joint sustainability initiatives.
Building a resilient and sustainable supply chain is not only smart from a compliance perspective but also a way to future-proof your business. As environmental regulations tighten, companies with strong, sustainable supply chains will be better positioned to thrive.
Utilizing Support Mechanisms
Finally, don’t forget that you’re not alone in this. The EU and various national governments offer support programs, grants, and resources to help small businesses adapt to new regulations like CBAM. Take advantage of these opportunities to learn, adapt, and grow.
Stay informed about the latest developments, seek out expert advice, and connect with industry associations that can provide guidance and support. The more you engage with these resources, the better equipped you’ll be to navigate the challenges and seize the opportunities that CBAM presents.
Long-term Considerations: Risks and Opportunities Ahead
As we look to the future, it’s clear that CBAM will bring both risks and opportunities for small businesses. Preparing for these long-term impacts is essential for sustaining growth and competitiveness.
Potential Risks: As with any significant regulatory shift, there are risks involved. Non-compliance with CBAM could lead to financial penalties, market exclusion, or reputational damage. Small businesses, in particular, need to be mindful of these risks and take proactive steps to mitigate them. Early adaptation is key. The sooner you start preparing for CBAM, the easier it will be to integrate its requirements into your business operations without disruption.
Emerging Opportunities: But let’s not forget the flip side: opportunities. CBAM isn’t just a hurdle to overcome; it’s also a catalyst for innovation. By embracing the changes it brings, small businesses can differentiate themselves, access new markets, and build stronger, more sustainable business models. Imagine your business not just surviving under CBAM, but thriving—leading the way in sustainability, winning new customers, and driving long-term growth. That’s the potential that’s within reach if you’re willing to adapt and innovate.
Conclusion
As CBAM approaches, small businesses face a unique set of challenges and opportunities. While the prospect of increased costs and supply chain disruptions is real, so too is the chance to position your business as a leader in sustainability. By understanding the implications of CBAM, taking proactive steps to reduce your carbon footprint, and leveraging available resources, you can not only navigate this new landscape but also thrive in it.
Remember, CBAM is more than just a regulatory hurdle—it’s a sign of the future direction of business in the EU. By embracing this change, you can ensure that your small business is not just compliant, but competitive and resilient in the years to come.
Book your personal demo for our CBAM Reporting Manager now and find out how we can help you overcome the challenges and comply with regulations.
The European Union (EU) set out ambitious climate goals like reducing greenhouse gas emissions by at least 55% by 2030 and to achieve climate neutrality by 2050. Central to this effort are the EU Emissions Trading System (EU ETS) and the Carbon Border Adjustment Mechanism (CBAM). Both instruments are designed to reduce carbon emissions while maintaining the competitiveness of EU industries. The phase-out of free EU ETS certificates and the introduction of CBAM certificates represent a significant shift in the EU's approach to carbon pricing, with implications for both EU and non-EU producers.
Introduction to CBAM and EU ETS
The EU ETS is a cornerstone of the EU’s climate policy, operating as a cap-and-trade system that sets a limit on the total amount of greenhouse gases that can be emitted by covered sectors. Companies receive or purchase emission allowances, which they can trade with one another. Over time, the cap is reduced, driving overall emissions down.
The CBAM, on the other hand, is a new mechanism designed to address the risk of carbon leakage—where companies move production to countries with less stringent climate policies or where EU products are replaced by more carbon-intensive imports. CBAM ensures that imported goods into the EU are subject to the same carbon pricing as goods produced within the EU, thereby leveling the playing field and incentivizing global emissions reductions. To ensure this, companies that import CBAM goods into the EU will have to purchase CBAM certificates for the imported embedded emissions starting in 2026. CBAM currently covers seven carbon-intensive sectors. More will follow over time.
Free EU ETS Certificates and the Introduction of CBAM Certificates
Under the current EU ETS, certain industries receive a portion of their carbon allowances for free. This system of free allocation was introduced to protect energy-intensive industries from carbon leakage, reducing the risk that these industries would relocate production outside the EU to avoid carbon costs. However, as the EU intensifies its climate goals, the free allocation of allowances is increasingly seen as incompatible with the need for a robust and fair carbon pricing system.
Therefore, CBAM certificates will replace free EU ETS certificates as the EU shifts towards a more stringent carbon pricing mechanism. By requiring importers to purchase CBAM certificates equivalent to the carbon price that would have been paid had the goods been produced under the EU ETS, the CBAM ensures that non-EU producers are subject to the same carbon costs as EU producers. This move not only reinforces the EU's climate objectives but also encourages global industries to decarbonize, as they face the prospect of increased costs for exporting carbon-intensive goods to the EU.
Timeline for the Phase-Out of Free EU ETS Certificates
The phase-out of free EU ETS certificates is scheduled to occur gradually, starting with the introduction of CBAM in its definitive phase form 2026 on. From 2026 to 2034, free allowances will be progressively reduced, with a corresponding increase in the number of CBAM certificates required for imports (see picture). This gradual phase-out is designed to give EU industries time to adapt to the new carbon pricing environment while avoiding sudden cost increases that could undermine their competitiveness.
During this phase out period, the EU will carefully monitor the impact of the phase-out and the effectiveness of CBAM in preventing carbon leakage. The European Commission has also committed to reviewing the phase-out timeline and the implementation of CBAM, making adjustments as necessary to ensure that both mechanisms effectively support the EU's climate goals.
Implications for EU and Non-EU Producers
The phase-out of free EU ETS certificates and the introduction of CBAM certificates have significant implications for both EU and non-EU producers.
In the first few years of the phase-out, the proportion of free certificates is still high, therefore not so many CBAM certificates need to be purchased. This changes quickly after 2029, increasing the financial impact. This transitional phase is designed to ease the shift for EU industries, allowing them to gradually adapt to the increased carbon pricing.
As the phase-out progresses and free allowances diminish, EU producers will see their carbon costs rise. This increase in costs will incentivize them to invest in cleaner technologies and reduce their carbon footprint, aligning with the EU's broader climate goals. The gradual reduction in free allowances ensures that EU producers have time to adjust, but it also means that they must prepare for a future where they compete on equal footing with non-EU producers in terms of carbon costs.
For non-EU producers, CBAM represents a new cost for exporting goods to the EU. To remain competitive, these producers will need to reduce the carbon intensity of their production processes or face higher costs associated with CBAM certificates. This creates a strong incentive for global industries to adopt more sustainable practices, contributing to the EU's efforts to drive global emissions reductions.
Conclusion
The phase-out of free EU ETS certificates and the introduction of CBAM certificates mark a significant evolution in the EU's climate policy. By aligning carbon costs for both EU and non-EU producers, the EU is taking a step towards achieving its climate goals while maintaining the competitiveness of its industries. As this transition unfolds, it will be important for both EU and global producers to adapt to the new carbon pricing landscape, investing in innovation and sustainability to be successful in a low-carbon economy.
The journey to sustainability begins with understanding the environmental impact of our products. However, with various metrics available, it can be challenging to know where to start. In this blog we focus on two important measures: Product Environmental Footprint (PEF) and Product Carbon Footprint (PCF). We explain their differences below and why both metrics are essential for a comprehensive approach to sustainability.
In a nutshell - Difference between PEF and PCF?
PEF and PCF are both tools used to measure the environmental impact of products, but they differ in scope and focus. PEF provides a comprehensive assessment covering multiple environmental impacts such as water use, land use, and pollution, while PCF specifically focuses on the greenhouse gas emissions associated with a product. These differences make PEF suitable for a holistic environmental strategy and PCF more focused on carbon management and reduction.
What is the PEF?
The PEF is a method for measuring the environmental impact of a product throughout its entire lifecycle, considering a wide range of environmental factors. PEF covers various environmental impacts, including water use, land use, pollution, and resource depletion. It provides a detailed and thorough understanding of the environmental aspects associated with a product, from raw material extraction to disposal. PEF utilizes the Life Cycle Assessment (LCA) approach, which examines the environmental impacts at every stage of a product's lifecycle. This includes raw material extraction, manufacturing, distribution, use, and end-of-life disposal. The methodology is grounded in international standards such as ISO 14040 and ISO 14044, ensuring consistency and reliability. Additionally, PEF is guided by the European Commission's specific guidelines and frameworks, which further enhance its credibility and adoption across industries.
What is the PCF?
In contrast, the PCF specifically measures the total amount of greenhouse gas emissions (expressed in CO2 equivalents) generated by a product throughout its lifecycle. PCF focuses solely on carbon emissions, including direct and indirect emissions from production, transportation, use, and disposal. It provides a targeted assessment of a product's impact on climate change. PCF calculations are based on carbon accounting principles and often use the Greenhouse Gas (GHG) Protocol Product Life Cycle Accounting and Reporting Standard. This methodology emphasizes the quantification of carbon emissions at each stage of the product lifecycle, ensuring a clear and focused understanding of its climate impact. PCF is governed by standards such as the GHG Protocol, ISO 14067, and other regional carbon reporting guidelines, providing a robust framework for accurately measuring and reporting carbon emissions.
Key Differences Between PEF and PCF
The main differences between PEF and PCF lie in their scope and coverage. PEF evaluates multiple environmental impacts, including water use, land use, pollution, and resource depletion, while PCF concentrates exclusively on carbon emissions, providing a focused assessment of climate impact. Methodologically, PEF employs a broader Life Cycle Assessment (LCA) approach, considering a wide range of environmental factors, whereas PCF uses specific carbon accounting methods, emphasizing the quantification of greenhouse gas emissions. In terms of applications, PEF is ideal for comprehensive environmental reporting and sustainability strategies, suitable for businesses seeking a holistic understanding of their environmental impacts and aiming to implement broad sustainability initiatives. On the other hand, PCF is best suited for carbon management and reduction strategies, helping businesses identify and mitigate their carbon footprint, aligning with climate action goals and regulatory requirements.
To illustrate the practical application of these metrics, consider industries like food and beverage, electronics, and textiles. In the food and beverage sector, PEF can assess the overall environmental impact of production, packaging, and distribution, while PCF focuses on the carbon emissions from agricultural practices, processing, and transportation. In electronics, PEF evaluates resource use, waste generation, and pollution, whereas PCF highlights the carbon footprint of manufacturing and energy consumption.
Conclusion
In conclusion, PEF and PCF are essential tools for understanding and managing the environmental impacts of products. PEF provides a broad assessment of multiple environmental factors, while PCF offers a focused analysis of carbon emissions. Together, they offer a robust framework for sustainable business practices. Encouraging businesses to adopt both PEF and PCF metrics will lead to a comprehensive approach to sustainability, enhancing environmental performance, meeting regulatory standards, and responding to consumer demand for sustainable products. As environmental concerns continue to grow, the importance of accurate and comprehensive footprint metrics will only increase. The future of sustainability lies in the integration of holistic and specific impact assessments, guiding businesses toward a more sustainable and responsible future.
The European Emission Trading System (EU ETS) is a key element in the EU's effort to combat climate change. For businesses, understanding its workings and implications is essential for compliance and strategic planning. In this blog post, we will dive into the key aspects that businesses need to know about the European Emission Trading System, including its mechanisms, benefits, and challenges.
Overview of the European Emission Trading System
The European Emission Trading System is the world's first and largest carbon market, based on a cap-and-trade principle. It limits emissions from over 11,000 power stations and industrial plants in 30 countries. Businesses must hold enough allowances to cover their emissions, creating a financial incentive to reduce carbon output. The system sets a cap on emissions, which decreases over time to reduce the overall carbon footprint. Companies receive or buy emission allowances, each representing the right to emit one tonne of CO2. Businesses can buy or sell allowances on the carbon market, providing flexibility in how they comply with emission reduction targets. Additionally, the EU ETS directly influences the Carbon Border Adjustment Mechanism (CBAM) by setting a benchmark for carbon costs. CBAM aims to level the playing field by imposing carbon costs on imports from countries with less stringent climate policies, ensuring that EU businesses remain competitive while preventing carbon leakage.
How the Cap-and-Trade System Works
The cap-and-trade system sets a limit on the total amount of greenhouse gases that can be emitted by installations covered by the European Emission Trading System. Companies receive or buy emission allowances, which they can trade with one another as needed. This flexibility ensures that emissions are reduced where it is most cost-effective. Businesses receive a certain number of free allowances, with the option to purchase additional ones through auctions. The EU ETS provides a marketplace for buying and selling allowances, ensuring liquidity and price discovery. Additionally, the Market Stability Reserve addresses surplus allowances and ensures market stability, protecting against excessive price fluctuations.
Compliance Requirements for Businesses
Meeting the European Emission Trading System (EU ETS) requirements is a multi-step process that demands precision and diligence from businesses. Complying with these requirements is not only essential for avoiding penalties but also for ensuring efficient operations and the sustainability of the company. Below is a detailed look at the compliance requirements for businesses participating in the EU ETS.
1. Emissions Monitoring
The cornerstone of compliance is accurate emissions monitoring. Businesses must implement reliable systems to accurately measure their greenhouse gas emissions. This involves:
Regular Data Collection: Continuously gathering data on fuel consumption, production processes, and other relevant activities that contribute to emissions.
Standardized Measurement Techniques: Employing standardized and approved measurement techniques to ensure consistency and accuracy in data collection.
Calibration and Maintenance: Regularly calibrating and maintaining monitoring equipment to avoid discrepancies in emission data.
2. Reporting
Annually, businesses are required to compile and submit detailed emissions reports. This step is critical for demonstrating compliance and is subject to strict verification processes:
Annual Reporting: Companies must prepare comprehensive reports detailing their total emissions for the year. These reports should align with the EU ETS guidelines and include all necessary calculations and data points.
Verification by Accredited Bodies: Before submission, the reports must be verified by an accredited third-party verifier. This ensures the accuracy and reliability of the reported emissions data.
Documentation and Record-Keeping: Businesses should maintain detailed records of their emissions data, monitoring processes, and verification reports. These records must be kept for a specified period, usually five years, for audit purposes.
3. Surrendering Allowances
By April 30th each year, businesses must surrender enough emission allowances to cover their verified emissions from the previous calendar year. This process involves:
Allowance Allocation: Businesses receive a certain number of free allowances based on historical emissions and sector benchmarks. However, they may need to purchase additional allowances if their emissions exceed their free allocation.
Market Participation: Companies can buy additional allowances from the EU ETS carbon market if necessary. Participating in the market requires understanding market dynamics, pricing, and trading strategies.
Timely Submission: It is crucial to surrender the required allowances by the deadline to avoid penalties. Non-compliance can result in high fines and an obligation to make up for the shortfall in the following year.
4. Penalties for Non-Compliance
Failure to comply with the EU ETS requirements can lead to significant financial and operational consequences:
Fines: Non-compliant businesses face fines of €100 per tonne of CO2 emitted without corresponding allowances. This can quickly escalate depending on the level of non-compliance.
Reputation Risk: Persistent non-compliance can damage a company's reputation, affecting stakeholder trust and potentially leading to further regulatory scrutiny.
Operational Adjustments: Businesses may need to adjust their operations or invest in new technologies to meet compliance requirements, which can entail additional costs and resource allocation.
Ensuring Compliance
To ensure compliance with the European Emission Trading System, businesses should adopt a proactive and strategic approach. This includes investing in advanced monitoring technologies, training staff on compliance requirements, and staying informed about regulatory updates. Engaging with environmental consultants and leveraging external expertise can also help navigate the complexities of the EU ETS.
Financial Implications and Opportunities
The European Emission Trading System affects business costs, as companies must factor in the price of carbon allowances. However, it also offers opportunities; businesses that reduce emissions can sell surplus allowances for profit. Investing in low-carbon technologies can lead to long-term savings and improved sustainability credentials. Trading allowances can provide a cost-effective way to meet emission reduction targets. The need to reduce emissions can drive technological innovation and operational efficiency. Companies that reduce emissions beyond their allowances can sell excess allowances, generating additional revenue.
Strategies for Businesses to Thrive in the EU ETS
To succeed under the European Emission Trading System, companies should enhance energy efficiency, invest in renewable energy, and explore innovative technologies to reduce emissions. Participating in carbon offset projects and staying updated on policy changes can also provide strategic advantages. The EU ETS is expected to undergo significant changes as the EU tightens its climate goals. Businesses need to stay informed about these developments to adjust their strategies accordingly. Future phases may bring stricter caps and a broader scope, impacting more sectors and creating new challenges and opportunities. By proactively adopting sustainable practices and staying ahead of regulatory changes, businesses can not only comply with the EU ETS but also capitalize on the opportunities it presents.
Conclusion
The European Emission Trading System presents both challenges and opportunities for businesses. By understanding its mechanisms, complying with its requirements, and adopting proactive strategies, companies can avoid penalties, benefit financially, and enhance their sustainability. Staying informed and adaptable will be key as the European Emission Trading System evolves in the coming years.
The Corporate Sustainability Reporting Directive (CSRD) is being progressively implemented, with more companies coming under its scope each year until 2026. Starting in 2025, large non-listed companies will also be required to report under the CSRD. Integrated within the discussions and requirements of the CSRD are the European Sustainability Reporting Standards (ESRS). Given the complexity and interconnectedness of EU regulations, this blog aims to clarify the differences and commonalities between the CSRD and the ESRS.
What is CSRD?
The CSRD represents a significant step forward in the EU's efforts to enhance corporate transparency on environmental, social, and governance (ESG) issues. Introduced on January 5, 2023, the CSRD builds upon and replaces the Non-Financial Reporting Directive (NFRD). Its primary objective is to ensure that companies provide comprehensive and reliable information on their sustainability practices, risks, and impacts.
The CSRD applies to all large companies and all listed companies within the EU, except micro-enterprises. This broad scope means that a substantial number of organizations, including non-EU companies generating over EUR 150 million in the EU market, must comply. The directive aims to improve the quality and comparability of sustainability information, making it easier for investors and other stakeholders to assess corporate performance against sustainability criteria.
What is ESRS?
The ESRS are the specific guidelines that operationalize the CSRD's requirements. Developed by the European Financial Reporting Advisory Group (EFRAG) and adopted by the European Commission, the ESRS provide detailed instructions on how companies should report on various ESG topics.
The ESRS are designed to be comprehensive, covering a wide range of issues such as climate change, biodiversity, and human rights. They ensure that companies' sustainability reports are consistent, comparable, and aligned with the EU's broader sustainability goals. Importantly, the ESRS also aim to harmonize with international standards, reducing the reporting burden on companies operating globally and preventing unnecessary double reporting.
Key Differences Between CSRD and ESRS
Understanding the distinction between the CSRD and ESRS is crucial for businesses aiming to achieve effective compliance and reporting. In this blog post, we break down how the CSRD sets the broad legal framework for sustainability reporting and how the ESRS translate these mandates into actionable standards. Learn about the legal obligations, detailed reporting guidelines, and practical methodologies these regulations offer. For a comprehensive comparison, see the detailed table below.
Implications for Businesses
Navigating the requirements of both the CSRD and the ESRS can seem overwhelming, but understanding their distinct roles simplifies compliance.
Compliance Requirements: Businesses need to familiarize themselves with the CSRD to understand the overarching obligations and then dive into the ESRS for specific reporting guidance. This dual approach ensures that companies meet both the legal and practical aspects of sustainability reporting.
Operational Impact: Implementing the CSRD and ESRS may require significant changes to existing reporting processes. Companies might need to invest in new systems, hire sustainability experts, or train existing staff to meet the new requirements.
Benefits and Challenges: While compliance can be challenging, the benefits include improved transparency, better risk management, and enhanced investor confidence. By adhering to these standards, companies can also position themselves as leaders in sustainability, potentially gaining a competitive edge.
Conclusion
In summary, the CSRD and ESRS are essential in the EU's drive towards greater corporate transparency and sustainability. While the CSRD sets the broad legal framework, the ESRS provide the detailed standards necessary for effective compliance. Understanding and implementing these requirements will not only ensure compliance but also enhance your company’s reputation and performance in the long term.
