The Carbon Border Adjustment Mechanism (CBAM) is a central element of the EU's "Fit for 55" package, which aims to reduce CO2 emissions by 55 percent by 2030 compared to 1990 levels.
Who is affected?
The CBAM affects companies in the EU that import goods such as iron, steel, cement, aluminium, electricity, fertilizers and hydrogen from non-EU countries.
CBAM objectives
The introduction of the CBAM addresses the risk of so-called "carbon leakage", where companies relocate their production to countries with less stringent environmental regulations for cost reasons. The scheme is intended to reduce this risk by obliging importers of relevant products to pay a carbon price for upstream emissions. This compensation aims to ensure that domestic companies that produce comparable goods are not put at a disadvantage.
The CBAM is therefore a key instrument for promoting climate protection and fair competition. It underlines the importance of integrating environmental aspects into trade practices and creates incentives for more sustainable production beyond the EU.
CO2 price calculation and exemptions
The CO2 price for imported CBAM products is based on the average price of emission allowances of the European Emissions Trading System (ETS). One CBAM certificate corresponds to one ton of CO2, N2O or HFC emissions. Importers are entitled to reductions in the number of CBAM certificates that must be surrendered if a CO2 price has already been paid in the country of origin. Imports from countries participating in or linked to the EU ETS are exempt from the rules.
CBAM process and requirements
The initial group of affected products includes iron and steel, aluminium, cement, fertilizers, electricity, and hydrogen. The CBAM obligations began with a transition phase in October 2023. In this first phase of CBAM, companies only have to fulfill reporting obligations. The implementation phase starts in January 2026 and will require importers to have 'authorized CBAM declarant' status, calculate their emissions, purchase and surrender CBAM certificates, and report annually.
Creating a level-playing field for climate change mitigation
The CBAM complements the European ETS, which provides companies in energy-intensive sectors with free allowances. The latter will be gradually phased out under the CBAM. The mechanism aims to strengthen the effectiveness of EU climate action and prompt non-European companies to reduce their own CO2 emissions.
Relevance of CBAM for supply chain sustainability
CBAM is highly relevant in the context of corporate supply chain sustainability as it takes into account the environmental impact of imported goods. Carbon pricing creates an incentive for companies to promote more sustainable production methods in order to avoid competitive disadvantages.
Challenges for companies in complying with the CBAM regulation
Companies face many new challenges in complying with the CBAM regulation. They include the need to obtain "Authorized Declarant" status, collect upstream emissions, purchase CBAM allowances and meet annual reporting requirements. This requires a high level of expertise and sufficient resources.
IntegrityNext supports its customers along the CBAM journey. We can help to ease the burden and allow you to meet the requirements with minimal effort.