Carbon Border Adjustment Mechanism (CBAM): Why? How? What?

The EU’s Carbon Border Adjustment Mechanism (CBAM) is a tool to put a fair price to the lifecycle of carbon intensive goods imported into the EU. The mechanism was created to encourage near-sourcing and a cleaner industrial manufacturing in non-EU countries. After all, non-compliance could result in restricted access into the EU market, a major destination for global exports.

Timelines

As per October 2023, CBAM imposes a reporting obligation and carbon tax for companies importing designated goods (for now: cement, electricity, hydrogen, fertilizers, iron, steel, aluminum). During the initial phases of CBAM, companies are given time to adjust to the reporting requirements before the full implementation expected on January 1st, 2026.

Impact throughout the supply chain

Depending on your position in the value chain, companies encounter direct or indirect implications of CBAM. Check below where your impact can be found.

1. Non-EU manufacturer. Impact: Indirect, compliance Customers of non-EU manufacturers of designated goods will be asked to provide the emissions related to the products. In addition, the emissions are to be calculated based on EU law.
2. Non-EU distributor. Impact: Indirect, compliance Customers of non-EU distributors of designated goods will be asked to provide the emissions related to the products. This means that the distributors will have to gather the emissions at the manufacturing sites and share the emissions of the products, calculated according the EU law.
3. EU buyer / distributor. Impact: Direct, Reporting (2023) and paying taxes (2026) The importer is required to report on (2023) and pay taxes for (2026) the embedded emissions of the designated goods to the EU authorities.
4. EU buyer / manufacturer. Impact: Indirect, Costs As a result of the carbon taxation upstream in the supply chain, the buyer of the designated goods may find a price increase of the materials. This could result in seeking a supplier or manufacturer with less embedded emissions related to the products. Penalties of non-compliance to CBAM is expected to be between € 10 and € 50 per ton of unreported embedded emissions.

What’s next?

Based on the product categorization of the Combined Nomenclature (HS codes with further EU subdivisions), companies can determine whether or not they imported designated goods (Annex I of the CBAM Regulation). As per CBAM, these companies should start to investigate their embedded emissions and find the right reporting structure for them.

More information?

Contact Niels Prins or Elise Gerritsen