The CBAM Revolution: How the EU’s Carbon Border Tax Will Reshape Your Business

What is CBAM?

CBAM stands for Carbon Border Adjustment Mechanism; it is a proposed policy by the European Union (EU) to address the issue of carbon leakage and ensure that the EU’s climate goals are not undermined by imports of goods produced in countries with lower environmental standards. CBAM encourages sustainability practices to reduce Carbon footprint globally.

The CBAM is a carbon pricing mechanism requiring importers to pay for the carbon emissions associated with producing goods imported into the EU. This mechanism is intended to level the playing field for EU producers subject to stringent climate regulations and carbon pricing within the EU.

The EU’s Net Zero Ambition

The EU has ambitious goals to become the first climate-neutral continent by 2050. The European Green Deal, a comprehensive roadmap for a sustainable transformation, drives this ambition.

• Green Deal: The overarching plan sets the 2050 net-zero target and outlines strategies for various sectors.
• Fit for 55 Package: A set of legislative proposals to achieve a 55% emission reduction by 2030 (compared to 1990 levels), a key milestone towards the 2050 goal. This includes:
• Strengthening the ETS: Expanding the scope of the Emissions Trading System to cover more sectors and reducing the overall cap on emissions.
• Boosting Renewables: Setting higher targets for renewable energy sources.
• Improving Energy Efficiency: Implementing stricter standards for buildings and products.
• Promoting Clean Transportation: Accelerating the shift to electric vehicles and sustainable transport fuels.

CBAM Compliance for EU importer

Transitional Phase (October 2023 – December 2025): Focus on Reporting

• Register with your national CBAM authority.
• Gather data: Collect data on the embedded emissions in your imported goods. This includes:
  • Production data: Information on the production process and associated emissions.
  • Carbon intensity: The amount of CO2 equivalent emitted per production unit.
  • Supply chain information: Details about the origin and manufacturing of the goods.
• Report quarterly: Submit quarterly reports to your CBAM authority detailing the embedded emissions of your imports. (The first report was due January 31, 2024).

Definitive Phase (From January 2026): Reporting and Certificate Purchases

• Continue reporting: Continue submitting annual CBAM declarations on embedded emissions.
• Calculate your CBAM liability: Based on the declared emissions, determine the number of CBAM certificates required. CBAM certificates are tradable instruments that EU importers must purchase to cover the embedded emissions in their imported goods.
• Purchase CBAM certificates: You can acquire the necessary certificates through the CBAM registry. The price will be linked to the EU ETS carbon price.  

• Supply Chain Management
• Software helps in Supply Chain Mapping, finds emission hotspots, and assesses carbon footprints.
• Platforms can facilitate collaboration with suppliers to gather emissions data, share best practices, and encourage emissions reduction efforts across the supply chain.
• Software tools can be used to conduct lifecycle assessments of products, enabling companies to understand the environmental impact.
• Risk Management –
  • AI-powered tools can analyze market trends, policy changes, and supply chain disruptions to identify potential risks and help companies develop mitigation strategies.
  • Systems can monitor regulatory & compliance requirements and trigger alerts for companies.
• Promoting Innovation & Green Technologies –
  • Data analytics can help companies identify areas for improvement and invest in green technologies to reduce their carbon footprint.
  • Use AI and ML for emissions forecasting, risk assessment, and process optimization.
  • IoT sensors to automate data collection from production facilities & transportation networks

CBAM Reporting Requirements: A Guide to Quarterly Submissions

A concise overview of the CBAM quarterly reporting requirements during the transitional phase (October 1, 2023, to December 31, 2025).

Who Needs to Report?

• It is mandatory for importers of cement, Iron and Steel, Aluminium, Fertilizers, Electricity, & Hydrogen into the EU to submit quarterly CBAM reports.

Reporting Deadline:

• Reports must be submitted within one month of the end of each quarter.

Where to Submit:

• Reports are submitted electronically through the CBAM Declarant Portal.

Mandatory Data Fields:

For each imported shipment of CBAM goods, the following data must be reported:

• Declarant Information: EORI (Economic Operators Registration and Identification) no., contact details.
• Importer Information: Name, address, EORI number.
• Goods Information:
• Commodity code (Combined Nomenclature code)
• Country of origin
• Quantity (net mass, supplementary units where applicable)
• Embedded emissions (total, direct, and indirect)
• Production details (if available):
• Installation ID
• Operator name and address
• Production process

Key KPIs:

While specific KPIs are not mandated for reporting during the transitional phase, it’s helpful to track the following:

• Total embedded emissions of imported goods per quarter.
• Embedded emissions per unit of imported goods.
• Breakdown of emissions by country of origin.
• Comparison of embedded emissions to EU benchmarks.

Reporting Guidelines:

• Ensure all data is accurate and complete.
• Use consistent units of measurement throughout the report.
• Keep records of all supporting documentation (e.g., invoices, certificates of origin, emissions calculations).

• CBAM
• CBAM Compliance
• CBAM Revolution