Skip to content
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 Carbon Border Adjustment Mechanism (CBAM) is a crucial part of the European Union's strategy to fight climate change and limit carbon leakage. Introduced under the European Green Deal, CBAM aims to level the playing field between EU producers and foreign competitors by imposing a carbon price on imports from countries with less stringent environmental regulations. This mechanism addresses the risk of carbon leakage, where businesses might relocate production to countries with laxer emission rules, thus undermining global climate efforts.
The timeline for CBAM implementation is structured to allow businesses to adapt gradually. The mechanism entered its transitional phase on October 1, 2023, during which companies must report the embedded emissions of their imported goods without incurring financial liabilities. This period will last until December 31, 2025, after which CBAM will fully come into effect. From January 1, 2026, importers will be required to purchase CBAM certificates corresponding to the total embedded emissions of their imports. A significant shift will occur in July 2024, when companies must switch from using default emissions values to primary data, requiring more precise and accurate reporting.
Non-compliance with CBAM regulations can result in severe sanctions. Companies failing to meet reporting obligations or accurately declare emissions could face fines of up to €50 per tonne of CO2e not reported or inaccurately reported, along with additional scrutiny and potential trade restrictions. Therefore, understanding and adhering to CBAM requirements is crucial for businesses engaged in international trade.
In this article, we will explore the five most common mistakes in CBAM reporting and provide insights on how to avoid them. By understanding these difficulties and implementing best practices, businesses can ensure compliance, avoid sanctions, and contribute to global efforts to mitigate climate change.
1. Misunderstanding Reporting Scope and Obligations
A frequent mistake in CBAM reporting is misinterpreting the scope and specific obligations. Many companies are unaware of the detailed requirements, such as which goods are covered, the exact data needed, and the responsibility for ensuring accurate submissions. This lack of understanding can lead to incomplete or incorrect reports, resulting in non-compliance and potential penalties.
How to Avoid It:
Conduct Comprehensive Training: Ensure all departments involved in CBAM reporting, including procurement, legal, tax, and sustainability understand their roles and responsibilities. Training sessions should cover the entire scope of CBAM obligations, and the specific data required for compliance.
Consult CBAM Guidelines and Experts: Regularly review official CBAM guidelines provided by the EU, such as the official CBAM website, and seek advice from compliance experts. This helps clarify uncertainties and ensures your company is up-to-date with the latest requirements and best practices.
2. Errors in Emissions Calculation
Calculating the correct embedded emissions for imported goods is a complex task. Mistakes often occur from using default values or incorrect emissions factors, especially when suppliers do not provide precise data. Moreover, starting from July 2024, companies must switch from using default emissions values to primary data, adding to the complexity of the reporting process.
How to Avoid It:
Use Accurate Methodologies: Follow the EU’s prescribed methodologies for calculating emissions. Ensure that all emissions data sources are reliable and up-to-date. Cross-check calculations to avoid discrepancies. On the Customs & Tax EU Learning Portal there are a lot of training videos on CBAM. You can find them here.
Engage with Suppliers: Develop strong relationships with your suppliers and communicate the specific emissions data requirements for CBAM compliance. Provide them with guidance and tools to help them report accurate emissions data.
Verify Emissions Data: Regularly audit the emissions data provided by suppliers to ensure accuracy. Use third-party verification services if necessary to validate the data and avoid potential compliance issues. For example, SupplyOn offers a “Plausibility” check for the emissions data supplier send in their tool.
3. Late Submission of Reports
Many businesses fail to submit their CBAM reports on time, often due to poor planning or lack of awareness of reporting deadlines. In the transitional period CBAM reports must be submitted quarterly, no later than one month after the end of each quarter. After the transitional period the report must be submitted yearly.
How to Avoid It:
Set Internal Deadlines: Establish internal timelines for report preparation well in advance of the official deadlines. For example, if the CBAM report is due by January 31st, set an internal deadline for January 15th to ensure everything is in order.
Maintain an Updated Calendar: Keep an updated calendar of all CBAM reporting deadlines and conduct periodic reviews to ensure readiness. Assign specific team members to monitor and manage these deadlines.
Understand Late Submission Procedures: If a technical error prevents you from submitting on time, you can request a delayed submission via the CBAM Transitional Registry. After the request, you will have 30 days to submit your report. Additionally, the first two CBAM reports (due by January 31 and April 30) can be corrected until July 31, 2024. Here is an overview with the submission deadlines and possible modifications:
A guide on how to request delayed submission can be found here.
4. Neglecting Indirect Emissions
Focusing solely on direct emissions and overlooking indirect emissions from electricity or other inputs is a common oversight. This can result in incomplete reporting and non-compliance with CBAM regulations.
How to Avoid It:
Comprehensive Data Tracking: Ensure your data collection encompasses both direct and indirect emissions, including emissions from electricity consumed during the production process and other indirect sources.
Apply Correct Emission Factors: Use the appropriate emission factors for indirect emissions as outlined in CBAM regulations. Verify these factors regularly to ensure they are up-to-date and accurate.
Train Your Suppliers: Educate your suppliers on the importance of providing accurate data on both direct and indirect emissions. Provide them with guidelines and tools to help them comply with CBAM requirements.
Engage Cross-Functional Teams: Involve various departments such as procurement, sustainability, and logistics in the emissions tracking process. This collaborative approach ensures that all relevant emissions data is captured and reported accurately.
5. Lack of Integration and Automation
Relying on manual processes for data collection and integration instead of using automated systems increases workload, error rates, and inefficiencies in data management. Manual methods are not only time-consuming but also prone to inaccuracies, leading to inefficient reporting processes and potential compliance failures.
How to Avoid It:
Adopt Automated Systems: Implement automated systems for data capture and integration to reduce errors and improve efficiency. Automation streamlines the reporting process, minimizes manual work, and ensures accurate data capture.
Integrate Data Management: Use integrated data management solutions that can seamlessly collect, store, and report CBAM-relevant data. This helps in maintaining consistent and accurate records.
Regular System Audits: Conduct regular audits of your automated systems to ensure they are functioning correctly and capturing all necessary data accurately.
By incorporating automated systems and ensuring seamless data integration, businesses can significantly reduce the risk of errors, improve efficiency, and facilitate easier compliance with CBAM requirements.
SupplyOn's CBAM Reporting Manager is one such automated system that helps companies deal with complex CBAM requirements and addresses all five of the most common mistakes. Get in touch with us to get a first look at our software.
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.
