The EU's CBAM Regulation for Carbon Accountability in Supply Chains

Share on:

Facebook
LinkedIn
WhatsApp

Category

Are you importing specific goods like fertilizers, cement, iron, and steel into the EU? Discover how these regulations impact your compliance obligations, and learn more about upcoming changes.

The European Union has taken a significant step forward in an effort to combat climate change with the implementation of the Carbon Border Adjustment Mechanism (CBAM) Regulation. This regulatory framework targets carbon leakage, a phenomenon where carbon-intensive production relocates to regions with less stringent environmental regulations, thus undermining global climate efforts. Under the CBAM, companies operating in carbon-intensive sectors like cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen are now obligated to report product-level carbon footprint.

Understanding the need for the EU’s CBAM regulation

The EU's ambitious climate goals, including achieving climate neutrality by 2050 and reducing greenhouse gas emissions by at least 55% by 2030, necessitate stricter policies regarding carbon emissions. In contrast, many non-EU countries maintain less stringent climate regulations, leading to potential carbon leakage. This poses a challenge as products imported into the EU may carry embedded carbon emissions, contributing to environmental harm.

To address this, the CBAM mandates that EU importers account for the carbon emissions associated with their imports. Importers must calculate and declare the carbon footprint of imported goods, covering emissions from various stages like production, transportation, and raw materials extraction. Moreover, starting from 2026, they must surrender certificates to offset these emissions, ensuring imported products adhere to the same carbon pricing mechanism as domestically produced goods within the EU.

Upcoming changes from 31st July and after the transition period

Until July 31st, firms have the option to submit CBAM reports using default values provided by the EU. However, after this deadline, they will be required to provide primary, site-specific data regarding the embedded emissions of their production processes. This shift underscores the urgent need for companies to accurately measure their product-level emissions to maintain access to the EU market.

The CBAM's phased implementation allows for a transitional period until 2026. During this time, EU importers will register with national authorities to obtain CBAM certificates, priced based on the weekly average auction price of EU Emissions Trading System (EU ETS) allowances. Importers will annually declare emissions and surrender certificates accordingly, ensuring compliance with EU regulations.

Looking ahead: what do companies need to do?

Looking ahead, companies must proactively address their carbon emissions to avoid penalties and maintain competitiveness in the EU market. Robust data collection and carbon footprint calculations, including historical data, are crucial for compliance. As the July 31, 2024 deadline approaches, companies should seek assistance to ensure they possess accurate primary data-supported footprints. Partnering with experts, like Greenhouse Sustainability can streamline emission calculations and equip companies with the tools needed for compliance in the evolving regulatory landscape.

Conclusion

In conclusion, the CBAM represents a significant stride towards carbon-neutral supply chains, incentivizing emissions reduction and ensuring a fair playing field for domestic and imported goods. By mitigating carbon leakage and accelerating global climate action, the EU aims to promote transparency and sustainability, fostering a greener, more resilient future.

As new regulations loom on the horizon, one thing remains evident: companies must be vigilant about their carbon emissions and equipped with robust data to support compliance. To avoid hefty fines, it's crucial for companies to prepare carbon footprint calculations, possibly incorporating historical data, to demonstrate efforts in emission reduction.

More
Interesting articles

Articles

What are the Environmental Impact Categories?

News

Dutch Flower Group starts collaboration with Greenhouse Sustainability

Articles

Let us introduce Robin: our new LCA-specialist