Guidance on CBAM Reporting: A step to support EU's climate goals by equalizing carbon costs
In today’s shifting global economy, businesses are not only expected to be profitable but also to be accountable for their environmental impacts. This transition from a sole focus on economic gain to a wider emphasis on sustainability reflects the growing importance of environmental responsibility in shaping business strategies. The Carbon Border Adjustment Mechanism (CBAM) is at the forefront of this evolution, setting guidelines for integrating carbon costs into the global trade system. By ensuring that imports carry the same carbon pricing as EU-produced goods, CBAM pushes companies to embrace lower-carbon practices and aligns global trade with broader climate goals.
Are you planning to comply with the Carbon Border Adjustment Mechanism (CBAM) regulation?
The Carbon Border Adjustment Mechanism (CBAM) is a new EU policy designed to prevent carbon leakage which corresponds to the risk that carbon costs could lead businesses to move their operations to countries with less stringent environmental regulations and carbon pricing mechanisms. It ensures that imported goods are subject to a carbon price which is equivalent to the carbon price of production in the EU.
How CBAM Transforms High-Emission Industries?
CBAM primarily impacts industries that produce goods with high carbon emissions. The key sectors affected include:
- Cement
- Iron and Steel
- Aluminium
- Electricity
- Fertilizers
- Hydrogen
These industries are targeted because they are energy-intensive and contribute significantly to carbon emissions. The CBAM regulation requires importers in these sectors to account for the carbon footprint of their products when importing them into the European Union.
Tackling the Global Challenge of Carbon Leakage: The EU Emission Trading Scheme (ETS) undermines efforts to reduce emissions locally and leads to production shifts to regions with less stringent environmental regulations. CBAM addresses carbon leakage by ensuring imports into the EU face equivalent carbon costs as domestic products, preventing the relocation of carbon-intensive industries and promoting global emissions reduction.
Strengthening the EU's Emission Reduction Goals: With the adoption of the Green Deal, the EU aims for carbon neutrality by 2050 and a 55% emissions reduction by 2030 to become a global leader in climate action. CBAM evolved as part of the EU’s broader strategy to reinforce its climate goals, ensuring that products consumed within the EU align with its emissions reduction targets and fit within the "Fit for 55 to adjust all policies with the new climate targets.
Global Environmental Policy Harmonization: CBAM aims to align global carbon pricing by protecting EU businesses from unfair competition and incentivizing non-EU exporters to adopt greener technologies. By pricing the carbon content of imports, CBAM promotes environmental integrity and sets a global standard for other countries (exporters) to fight against climate change.
Transitional Period: The transitional phase began on October 1, 2023, and runs until December 31, 2025. During this period, importers are not subject to any financial obligations. However, they must provide quarterly reports detailing the total volume of imported products for each quarter.
Definitive Period: From January 1, 2026, the definitive period introduces a financial obligation for importers to purchase CBAM certificates. This phase requires annual reporting and verification of emission data, where importers must report the total volume of products imported each year.
CBAM certificates cover the price that will be paid for the embedded carbon emissions generated in the production of certain goods imported into the EU. Importers will use CBAM certificates from January 2026 to cover the cost of embedded emissions in imported goods, purchasing and surrendering them annually based on their emissions. The price of CBAM certificates will reflect the average EU ETS auction price from the previous week.
Penalties: EU importers will face penalties for the goods imported on non-compliance of CBAM reporting. This can result either in delays or increase in costs.
Custom Authorities: Products may be held at EU ports by customs authorities. Delays in delivery can disrupt supply chains and impact customer satisfaction.
Market Share: Customers might switch to competitors who are CBAM-compliant resulting in reduced sales and market penetration in the European Union.
Blacklisting: Non-compliant manufacturers face the risk of blacklisting. This will lead to loss of market access and damage to the reputation.
Conclusion
future CBAM requirements.
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