In this article, we provide an update of the Carbon Border Adjustment Mechanism (CBAM), clarifying its current scope, applicability, and key considerations for both importers and their suppliers.
It is crucial for importers to understand and comply with CBAM and for suppliers to understand their requirements to ensure a smooth transition and contribute to achieving a sustainable future.
From 1st July 2024, importers of CBAM goods must now collect and report the actual emissions for each CBAM good imported into the EU. This means importers can no longer rely on estimates or use the simpler calculations based on default values that were provided in the guidance. Importers now have to ensure they are engaging their suppliers and collecting real data on a regular basis.
Similarly, suppliers located outside the EU who produce goods falling under the scope of the CBAM must be prepared to provide their EU importer customers the data they require. This may be the first time that suppliers have been requested to calculate and report carbon emissions,
CEN Group has a long history of providing our clients detailed carbon footprints at a product-, process-, site- or company-level, which means we can support importers and their suppliers in meeting any calculation or data requirements for CBAM. In addition, our team can provide resource to your business help comprehensively engage your supply chain, link CBAM reporting to your own net zero goals, generate governance structures and process or simply upskill your team to ensure your compliance with CBAM regulations.
What is CBAM?
The CBAM is an EU policy aimed at addressing carbon leakage and promoting climate action, aligning trade policies with climate ambitions. CBAM will work by, eventually, imposing a carbon price on imports of certain carbon-intensive goods from outside the EU, ensuring a level playing field with EU producers of the same goods who are subject to the EU Emissions Trading System (ETS).
At it’s heart, CBAM requires product-related carbon emissions measurement and reporting, which may require site-specific or even process-specific emissions calculations to be performed and reported.
CBAM targets final products from sectors considered most at risk of carbon leakage (“CBAM goods”). The initial focus is on imports of cement, iron and steel, aluminium, fertilisers, hydrogen, and electricity into the EU. The exact products within these sectors in scope of CBAM are outlined in the guidance [1] and are based on specific Combined Nomenclature (CN) codes, the classification system already used to identify goods for customs and trade purposes in the EU. CBAM’s scope is expected to gradually expand to encompass additional goods and sectors covered by the EU ETS by 2030.
Notable also is that precursor goods - the materials used as inputs in the production process of CBAM goods - also fall within the scope of CBAM in relation to the embedded carbon calculations required.
During the current transitional phase, from 1 October 2023 to 31 December 2025, CBAM operates as a reporting mechanism; importers are required to report embedded emissions associated with imported goods and do not face any financial obligations.
However, the definitive phase, starting from 1 January 2026, will introduce financial obligations for importers; importers will need to purchase CBAM certificates based on the EU ETS price, to cover the embedded emissions of imported goods.
Who does CBAM apply to?
The CBAM applies to "reporting declarants", which are defined as either the importer of
CBAM goods or their authorised indirect customs representative.
If the importer is based within the EU, they are directly responsible for CBAM reporting.
If the importer is based outside the EU, they must appoint an indirect customs representative established in the EU to fulfil their reporting obligations.
Individuals importing CBAM goods for personal use are generally exempt from CBAM obligations, as long as the total intrinsic value of CBAM goods in a consignment doesn't exceed €150.
Key steps for Importers during the transitional phase
Determine if Imported Goods Are Subject to CBAM
Consult Annex I of the CBAM Regulation and the Implementing Regulation, which provide a detailed list of CBAM goods identified by their CN codes (Combined Nomenclature). This list includes not only finished goods but also precursors used in the production of CBAM goods.
Register for the CBAM Transitional Registry
Importers need to register for access to the CBAM Transitional Registry through the National Competent Authority (NCA) of their respective Member State. The registry serves as the platform for submitting quarterly CBAM reports.
Gather Embedded Emissions Data from Operators
From 1st July 2024, importers are obligated to report the actual emissions for each CBAM good imported into the EU, except for electricity. Importers must therefore obtain actual embedded emissions data from operators of installations producing the imported CBAM goods. Embedded emissions include direct and indirect emissions from electricity consumption from the production of CBAM goods and the embedded emissions within any precursor goods used.
Submit Quarterly CBAM Reports
Importers are required to submit quarterly CBAM reports via the Transitional Registry, detailing the quantities of imported goods, their embedded emissions, and information on any effective carbon prices paid during production. Reports are due one month after the end of each quarter.
Key considerations for Importers
Engage with Suppliers: Establish clear communication channels with your suppliers producing CBAM goods (“Installation operators”) to ensure timely and accurate data exchange. In the future, these lines of communication will be used to encourage and monitor suppliers’ efforts to reduce embedded emissions in CBAM goods production and thus your liability as an importer.
Prepare for the definitive period: Starting in 2026, importers will be required to purchase and surrender CBAM certificates corresponding to the embedded emissions of the CBAM goods they import. The price of these certificates will be determined by the weekly average auction price of EU ETS allowances (currently just under €62/t CO2e). Importers can deduct the amount corresponding to any carbon price already paid during the production of the imported goods in a third country.
Key considerations for suppliers from outside the EU
From 1st July 2024, importers can no longer use estimations and default values within CBAM and will require their suppliers to monitor and report the embedded emissions of the goods they produce that are destined for the EU market.
To meet this requirement, suppliers, or installation operators, will therefore need a thorough understanding of their production processes and emissions sources related to the production of the relevant goods. Suppliers need to calculate emissions from their processes and also, if they buy in any of the specified precursors, go up the chain to their suppliers to obtain data on the emissions embedded in precursors used in their processes.
In addition, installation operators are required to develop a comprehensive Monitoring Methodology Documentation (MMD), which provides details of the methodologies employed to calculate embedded emissions of CBAM goods at their installation. Helpfully, the EU provides a standard template for reporting to the EU importers who are responsible for fulfilling the CBAM reporting obligations. This template helps ensure that operators provide all the data required by importers for completing their CBAM reports and the data requirements of the template can be used as a checklist to verify the completeness of your MMD.
For more details or help don’t hesitate to contact our team:
CEN helps businesses maximise their sustainability potential, performance, and ESG disclosure.
For more information about our services, please get in contact via email and our team would be happy to assist.
Jasper Crone: Director
Roger Johnston: Director
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