The EU's Carbon Border Adjustment Mechanism (CBAM)

Do you import aluminum, steel, iron, fertilizers, electrical energy, hydrogen or cement into the EU? Are the goods produced outside the EU?

In less than a month, your imports will be subject to the new Carbon Border Adjustment Mechanism (CBAM), with penalties for non-compliance.

But what is the CBAM, how will it work, and what should you do to prepare? Here’s what businesses need to know.

What is the CBAM?

The CBAM is a new carbon regulation — a type of carbon pricing — to help the EU fight climate change.

While the existing EU Emissions Trading System (ETS) covers EU countries, the CBAM will apply to goods produced outside the EU.

This addresses the problem of carbon leakage; that is, the situation where companies move the production of goods to countries with less stringent emissions policies, primarily to save costs associated with carbon pricing.

Unlike the ETS’s ‘cap-and-trade’ system, the CBAM (at least in its initial form) won’t set caps on imports or emissions, and there’ll be no trading of carbon permits.

How the CBAM works

The phase-in of the CBAM

The European Commission has agreed that the CBAM's transitional phase will end on 1 January 2026. Until then, emissions reporting is required without 'financial adjustment' through certificate purchasing. Free allowances for sectors covered by the EU ETS will end by 2034 (phased out from 2026). During this time the CBAM will apply only to the proportion of emissions that does not benefit from free allowances under the EU ETS, in order to fully respect the World Trade Organisation's rules.

Example: CBAM reporting in the transitional period

It’s November 2023 and you’re importing 1,000 tonnes of aluminum from South Africa to Rotterdam. You'll need to:

• Make a note that this import is a CBAM-covered import;
• Ask your suppliers (producers/installations) for the emissions data in line with the CBAM methodology;
• Suppliers have until January 2024 to provide importers with this data, following a calculation and communication template. Verification of this data is voluntary, but recommended, during the transitional period.

At the end of the quarter (by 31 January 2024):

Importers will need to submit a CBAM report to the European Commission, declaring the total greenhouse gas emissions embedded in your aluminum consignment.

This includes emissions released in the manufacturing of the aluminum (direct emissions), certain upstream emissions and indirect emissions (although these indirect emissions will not initially be subject to the carbon tax that begins in January 2026).

If you imported other CBAM products in that period, you’ll need to include their emissions in the report too.

If you can’t get primary emissions data for a production facility for upstream materials, then you’ll use the Commission’s default values (based on averages) in your calculations. These default values could be higher than the actual emissions, and from 2026 you’ll have to pay that price (you'll purchase one CBAM certificate for each tonne of reported direct emissions, at the cost of the latest weekly average ETS carbon price).

This process repeats every quarter (30 April 2024 for the second report) and the first two reports can be updated until 31 July 2024 if the importer gets better quality data.

Legislative process of the CBAM

• 10 March 2021: The European Parliament adopted a resolution on the CBAM.
• 14 July 2021: The European Commission adopted its proposal for a CBAM.
• 22 June 2022: The European Parliament adopted its position on the CBAM.
• 10 May 2023: The co-legislators signed the CBAM regulation.
• 16 May 2023: The CBAM regulation was published in the Official Journal of the EU.
• 17 May 2023: The CBAM regulation entered into force.
• 13 June - 11 July 2023: Feedback window for implementing regulation on reporting obligations during the transitional period
• 17th August 2023: The European Commission adopted the rules governing the implementation of the CBAM during its transitional phase

Preparing for the CBAM

Track your CBAM imports and emissions data with confidence.

Businesses only have a matter of months to get organized for the first CBAM deadline. Get equipped with CarbonChain’s supplier engagement and carbon reporting solutions:

CarbonChain's CBAM Reporting Solution:

Know your suppliers when it comes to carbon. Get ready for your quarterly CBAM emissions declarations, starting in January 2024:

• For importers: We support you to get the supplier data you need and complete your CBAM declaration reports;
• For installations: We support you to ensure your emissions data is CBAM-ready with a monitoring methodology and timely reporting.

CarbonChain's CBAM Financial Adjustment Solution:

A product’s emissions can vary hugely between different countries and production facilities. Quantify the upcoming cost of the CBAM and start decarbonizing your supply chains:

• Estimate the cost (from 2026) of CBAM pricing for your imports/exports;

• Compare current and potential suppliers and installations;

• Identify lower-carbon installations to secure multiyear procurement contracts.

Get CBAM-ready with CarbonChain