The 5 Biggest Mistakes in CBAM Reporting and How to Avoid Them

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.