The EU’s Carbon Border Adjustment Mechanism (CBAM) is set to take effect from October 2023 until 2025 as a transitional period, gradually applying to specific carbon-intensive goods. This mechanism is introduced to address the risk of “carbon leakage” by making importers pay for the carbon emissions associated with imported goods. It prevents industries from relocating production to countries with weaker climate policies and maintains a level playing field for domestic producers.
During this phase, the CBAM will be implemented in various sectors, including cement, iron and steel, aluminium, fertilisers, hydrogen, and electricity, while requiring mandatory quarterly emissions reporting. Beginning in 2025, importers must appoint an official CBAM representative (declarant) and will be penalized if quarterly CBAM reports are not submitted.
By January 2026, a price will be applied to CBAM credits in alignment with domestic carbon prices, and the free allocation allowances for domestic industries will be phased out. Certificate prices will be determined by the EU Emissions Trading System (ETS), which sets a limit on the amount of greenhouse gas emissions companies can produce and allows them to buy and sell emission allowances to meet their targets.
The CBAM is expected to cover over 50% of emissions in covered sectors, making it a significant tool in reducing global carbon emissions. To ensure the effective implementation of CBAM, the European Commission will monitor and review its progress during the transitional phase. Based on the outcomes of the transition phase, the European Commission may consider revising the product scope and expanding it to include additional carbon-intensive goods as necessary.
When implemented effectively, CBAM would generate a wealth of data on companies’ emissions and carbon pricing policies for heavy industries in third countries, which can be used to strengthen international climate policy. When implemented in close cooperation with trading partners, the carbon pricing initiative would enhance coordination on the use of carbon pricing mechanisms, which G20 Finance Ministers believe to be key in reducing GHG emissions.
Ensuring Compliance with CBAM Requirements
Tracking indirect emissions across value chains can be complex due to multiple components and the need for a systematic, transparent approach. At ESC, we perform in-depth assessments of your product’s carbon footprint and analyse the emissions associated with your entire production process using a cradle-to-gate approach. We’re here to help you meet your customers’ demands by reporting emissions. We do this by assessing your product’s carbon footprint and providing guidance on strategies to lower your carbon impact. Contact us for enquiries and meet CBAM compliance.