The Carbon Border Adjustment Mechanism (CBAM), a policy of the European Union (EU) aimed at addressing carbon leakage through taxing carbon emissions in imported goods, is presenting a challenge for companies worldwide.
However, the implementation of CBAM involves intricate administrative and technical procedures to accurately calculate the carbon emissions present in imported goods. This requires companies to collect and report detailed data on the carbon footprint of their products, a task that can be particularly difficult for small and medium enterprises (SMEs) with limited resources. Furthermore, the data requirement extends throughout the supply chain, underscoring the importance of coordinating with suppliers.
Thilo Brodtmann, Executive Director of the VDMA, representing 3,600 German and European machinery and equipment manufacturing companies, criticizes the current form of CBAM, stating that companies are unable to fulfill reporting obligations due to difficulties in accessing real emissions data from suppliers. There is uncertainty regarding the potential liability and sanctions for European companies if such data is unavailable, with no clear solutions provided by the EU Commission or national authorities.
Pankaj Pandey, Chief Operating Officer (COO) at EKI Energy Services Ltd, highlights the challenge of calculating emissions under CBAM, noting the stricter methodology compared to other frameworks like the GHG Protocol. He suggests that industry associations should facilitate knowledge sharing, enhance manufacturers’ capacity, and advocate for supportive decarbonization policies.
CBAM, implemented since October 2023, is currently in a transitional phase where companies within sectors such as steel, aluminum, cement, electricity, hydrogen, and fertilizer must report their carbon footprint to European customers. The definitive regime under CBAM will commence from January 2026, when the carbon price will be enforced. EU importers will declare embedded emissions and surrender corresponding certificates annually under this regime. From January 1, 2026, companies subject to CBAM exporting to the EU must purchase CBAM certificates to offset these emissions.
The EU has issued a comprehensive document and conducted workshops to aid businesses in understanding and complying with CBAM. Experts stress that successful CBAM implementation will necessitate strong administrative support from the EU and individual states.
Amid challenges faced by companies worldwide in adhering to CBAM regulations, there is a call for a mechanism that safeguards companies and does not penalize them if suppliers fail to provide requisite emissions data.
