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The Carbon Border Adjustment Mechanism (CBAM) is a key element of the European Union's climate strategy. Its goal is to stop carbon leakage and make sure EU industries stay competitive. CBAM, which is based on Regulation (EU) 2023/956, levies a carbon price on imported goods that corresponds to the price applicable in the EU under the Emissions Trading Scheme (ETS) to ensure a “level playing field” for goods produced inside and outside the EU. To comply with regulations and assess financial impact, companies need accurate carbon reporting. It's essential for businesses to understand the difference between using default values and primary data for this reporting.
Urgency to Collect Accurate Primary Data
As the sole use of default values is only permitted until June 30, 2024, it is crucial for companies to start collecting accurate primary data now to ensure compliance for the July-September reporting period. The transition to primary data reporting is not only a regulatory requirement but also a strategic necessity to maintain competitive advantage and avoid potential financial and operational setbacks.
Consequences of Failing to Collect Accurate Data:
Regulatory Penalties: Non-compliance with CBAM reporting requirements can result in substantial fines and penalties. Reporting declarants may face penalties ranging between €10 and €50 per ton of unreported incorrect emissions. Higher penalties can be applied when more than two incomplete or incorrect reports have been submitted or the duration of the failure to report exceeds 6 months.
Increased Costs: Inaccurate reporting due to reliance on default values can lead to overestimation of emissions. An overestimation in the full implementation period will require the purchase of more CBAM certificates than necessary, significantly increasing compliance costs.
Reputational Damage: Failing to comply with CBAM regulations can harm a company’s reputation, affecting stakeholder trust and market positioning.
Operational Disruptions: Last-minute efforts to gather primary data can cause significant operational disruptions, diverting resources from core business activities.
Understanding CBAM Reporting
CBAM aims to make sure EU-produced goods and imports are on an even playing field by equalizing carbon costs. This prevents companies from moving their production to countries with less stringent emissions regulations. Initially, CBAM targets the emission-intensive sectors iron and steel, cement, fertilizers, aluminum, hydrogen and electricity. The rollout started with a transitional period from October 2023 to the end of 2025 and then shifts to a definitive phase in January 2026.
Accurate carbon reporting is crucial for both compliance and efficiency under CBAM. It impacts the purchasing of CBAM certificates, which in turn affects a company's financial liability and competitive position. Precise reporting helps avoid penalties and strengthens a company's sustainability credentials.
Differences Between Default Values and Primary Data in CBAM Reporting
Challenges with EU's Communication Template
Many companies initially attempt to use the EU's communication template to collect primary data for CBAM reporting. While this template is intended to standardize data collection, it often leads to significant challenges and failures:
Complex to Understand and Difficult to Use: The EU's template can be complex and not user-friendly, making it difficult for users to navigate and input data correctly.
Lack of Indication of Data Plausibility: There is no plausibility check for the supplier-provided data and whether the emissions values are too high or too low, which can lead to inaccurate reporting.
Unstructured Data Collection: The template does not facilitate structured data collection from all relevant installation sites, leading to fragmented and inconsistent data.
Limited Bulk Operations: The template is not designed to send to multiple suppliers at once, nor does it easily allow for tracking of responses or sending reminders for corrections, which complicates the data collection process.
Time-Consuming Manual Data Entry: The template requires extensive manual data entry, which can be time-consuming and prone to errors, increasing the risk of inaccurate data submission.
SupplyOn's CBAM Reporting Manager
SupplyOn's CBAM Reporting Manager is designed to overcome these challenges and simplify the standardized data collection process to support your journey to CBAM compliance, ensuring companies can efficiently transition from default values to primary data reporting with minimal effort.
Key Features that You need for October Reporting:
- Automated Data Collection: CBAM Reporting Manager automates the collection of emissions data across various stages of the supply chain including operators and installation sites, reducing manual efforts and ensuring data accuracy.
- Collection of Mandatory Data Possibility: The software offers the option to collect and report only mandatory CBAM data to reduce the effort on both sides, importers and their suppliers.
- Bulk Data Collection: With just few clicks you can now collect data from all relevant operators and their installation sites at once.
- Plausibility Indicator: The software has plausibility database integrated to immediately check the collected supplier CBAM data where they are too high or too low.
- One click CBAM Report: The reporting panel makes it incredibly easy to check and create quarterly “XML” CBAM report just with a single click which are ready to submit to EU Transitional Registry.
What you should consider for July-September Reporting Period:
Transitioning from default values to primary data for CBAM reporting presents significant challenges for companies, but it is necessary for accurate compliance and financial efficiency in long term. SupplyOn’s CBAM Reporting Manager provides a robust solution, simplifying the data collection process and supporting your reporting journey with minimal effort.
Creating effective strategies for collecting better data from suppliers for CBAM (Carbon Border Adjustment Mechanism) reporting is crucial for companies to ensure compliance and facilitate smooth operations under the new EU regulation. This article outlines practical steps and methodologies that can be integrated into your data collection processes for enhanced efficiency and accuracy.
Understanding the Challenges
The first step in improving data collection from suppliers is to recognize the challenges both you and your suppliers might face. These can range from a lack of understanding of CBAM requirements to technical challenges in data collection and reporting. Identifying these challenges early on helps in tailoring your approach to supplier engagement and data collection.
Educating Your Suppliers
Education is key to overcoming initial hurdles. A well-informed supplier is more likely to provide accurate and timely data. Consider organizing training sessions, webinars, or creating informational content that breaks down CBAM requirements and explains the importance of accurate data reporting. Highlight how this not only ensures compliance but can also benefit the supplier through insights into their own carbon footprint and areas for improvement.
Streamlining Communication
Establish a clear, open line of communication with your suppliers specifically for CBAM-related inquiries. Designate points of contact within your organization who can address questions and provide support. This helps in minimizing confusion and delays in data submission.
Utilizing Digital Platforms as Standardized Approach
Digital platforms like SupplyOn’s CBAM software play a crucial role in simplifying the data collection process. SupplyOn’s CBAM software offers features such as:
Automated Data Collection: Automate the collection of relevant data directly from suppliers, reducing manual entry errors and saving time.
Centralized Data Management: Store and manage all supplier data in a single, secure location, making it easier to review, analyze, and report.
Data Plausibility Check: Implement checks to validate the accuracy of the data received and highlight discrepancies or missing information for follow-up.
One click report: Once the data is collected, directly download the ready to go report in XML format to submit quarterly.
Continuous Improvement and Feedback
Finally, establish a process for continuous improvement. Use feedback from suppliers and insights from data analysis to refine your data collection processes over time. Regularly update your strategies to address new challenges and leverage advancements in technology and best practices.
Conclusion
Improving data collection from suppliers for CBAM reporting is a multifaceted process that requires education, communication, and the right technological tools. By implementing standardized practices, leveraging digital platforms like SupplyOn CBAM software, and fostering a collaborative environment, companies can enhance the accuracy and efficiency of their CBAM data collection efforts, ensuring compliance and fostering sustainability within their supply chains.
As the Carbon Border Adjustment Mechanism (CBAM) reshapes the regulatory landscape, many businesses are still finding their ways to submit their quarterly report. However, CBAM must be strategically integrated in their procurement practices to ensure compliance and foster resilience. This article explores how CBAM can be part of such procurement strategies and have long term influence in how companies source, contract, manage supplier relationship and optimize.
Amidst the Carbon Border Adjustment Mechanism (CBAM), procurement professionals can act as below to address challenges and opportunities:
Evaluating Suppliers' Carbon Footprint: Procurement professionals must assess suppliers' carbon footprint to gauge environmental impact and risks related to CBAM compliance. This involves collecting emissions data and prioritizing low-carbon suppliers.
Negotiating Carbon Clauses in Contracts: Incorporating carbon clauses is essential for CBAM compliance. Procurement teams must collaborate with legal and sustainability experts to draft enforceable provisions, reducing legal and financial risks.
Establishing Clear Communication Channels for CBAM Compliance: Effective communication is crucial for transparency and collaboration. Procurement professionals should establish clear protocols and maintain open dialogue with suppliers.
Supplier Relationship Management for Collaboration and Accountability: Strategic partnerships with environmentally responsible suppliers are key. Effective supplier relationship management fosters collaboration and drives sustainable growth.
Diversifying Sourcing: Procurement teams must assess their current supplier base and identify dependencies on regions or suppliers that may face higher carbon costs under CBAM. By diversifying their sourcing strategies, businesses can reduce their exposure to potential disruptions and risks associated with carbon pricing. This may include exploring alternative suppliers from regions with lower carbon footprints or investing in partnerships with suppliers committed to sustainability practices.
Investing in Alternative Suppliers: Beyond diversification, businesses should actively invest in building relationships with alternative suppliers who can offer more sustainable sourcing options. This investment may involve conducting thorough assessments of potential suppliers, negotiating contracts that align with CBAM requirements, and fostering long-term partnerships built on shared sustainability goals. By cultivating a robust network of alternative suppliers, businesses can enhance their flexibility and resilience in the face of regulatory changes and market uncertainties.
Leveraging CBAM software: Digitalization plays a crucial role in data collection from suppliers, calculate CBAM related emissions, run plausibility check and report preparation in XML format in just few clicks. Such streamlined approach can quickly ease the burden and the data can be easily integrated to overall procurement process. Check SupplyOn’s CBAM Reporting Software here.
Supply chain optimization in the context of CBAM involves not only adapting to new regulatory requirements but also proactively building resilience through diversification, investment in alternative sourcing, and leveraging software technologies. By embracing these strategies, businesses can navigate the complexities of CBAM compliance more effectively and position themselves for sustainable growth in the evolving regulatory landscape.Incorporating sustainability into supply chain practices goes beyond mere compliance with CBAM regulations. It involves a holistic approach aimed at combining CBAM, Supply Chain Law, Human Rights Due Diligence, CSRD Reporting, Product Carbon Footprint measurement all part of one strategy to succeed in long run.
Conclusion:
In the CBAM era, procurement tackling such ESG related topics in strategic manner is essential for businesses to ensure compliance, drive sustainability and be efficient with your resources across the supply chain. To learn more how SupplyOn can empower your sustainable procurement organization, contact our ESG experts here.
