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As the Carbon Border Adjustment Mechanism (CBAM) becomes a crucial part of the EU's sustainability regulations (read here about CBAM regulatory requirements), companies importing carbon-intensive goods must prepare to manage their emissions and associated costs.
With the Carbon Border Adjustment Mechanism (CBAM) introduced in October 2023, importers of goods into the European Union (EU) are now required to start reporting the emissions embedded in their products. By 2026, they will begin paying for them. CBAM, the first of its kind globally, is designed to level the playing field for EU producers who have been paying for their emissions under the EU Emissions Trading System (EU ETS). Without this, imports from countries without carbon pricing could undercut local producers. Over the next five years, CBAM will reconfigure international trade and put pressure on other economies to reduce emissions.
Challenges of CBAM
The CBAM faces significant challenges. Accurately calculating lifecycle emissions for complex supply chains is daunting, especially for companies relying on global suppliers where data might be incomplete. The fluctuating price of CBAM certificates, linked to the EU ETS, adds financial uncertainty.
For non-EU exporters, investing in carbon abatement technologies will become necessary to maintain access to the European market. Steelmakers, hydrogen producers, and refiners must rethink their operations, moving toward low-emission production processes to avoid being priced out by the CBAM. Governments outside the EU will also face growing pressure to introduce or raise carbon pricing to capture revenues domestically instead of losing them to the EU. For the EU itself, monitoring CBAM’s impact on prices and consumer costs will be essential to prevent unintended economic disruptions.
How Peer Ledger Can Help
Peer Ledger's Digital Product Passport, which supports the EU's PEFCRs and incorporates the Circular Footprint Formula (CFF), offers a powerful solution to help companies reduce their CBAM liabilities while advancing sustainability.
1. Accurate Lifecycle Emissions Accounting
CBAM requires companies to calculate the carbon footprint of their imported products, and Peer Ledger's Digital Product Passport, leveraging the CFF and PEFCRs, provides a comprehensive way to account for emissions across a product’s entire lifecycle. From raw material extraction to the end of a product’s life, these detailed and transparent accounting methods can minimize the reported emissions by accurately including data on recycled content and resource reuse. This results in fewer CBAM certificates needing to be purchased.
2. Lower Costs by Quantifying Recycled Content
The CFF emphasizes circularity, accounting for the environmental benefits of using recycled materials. CBAM covers industries like steel, aluminum, and cement—sectors that often incorporate recycled content. Peer Ledger’s Digital Product Passport helps companies precisely measure the carbon savings from recycled materials, potentially lowering their CBAM costs. By reporting lower emissions through recycling, companies can significantly reduce the number of certificates required.
3. Alignment with EU Sustainability Regulations
CBAM and CFF both align with the EU’s sustainability framework, including the European Green Deal and the Circular Economy Action Plan. Companies already tracking lifecycle emissions through CFF will find it easier to meet CBAM’s reporting requirements. The data from Peer Ledger’s Digital Product Passport, which captures the environmental footprint of products, can be seamlessly applied to CBAM compliance, streamlining the process.
4. Enhanced Transparency and Compliance
Accurate and transparent reporting is critical for CBAM compliance. Peer Ledger’s Digital Product Passport provides standardized, verifiable data on a product’s emissions, helping to avoid costly misreporting. By embracing circularity, deploying more recycled materials, and using CFF to track and report emissions, companies can confidently claim lower carbon emissions, reducing the financial burden of CBAM compliance while avoiding penalties for inaccuracies.
5. Supporting a Circular Economy
While CBAM currently focuses on carbon emissions, the EU’s push toward a circular economy could eventually reward companies with circular business models. Peer Ledger’s Digital Product Passport supports this shift by quantifying the circularity of products, potentially giving companies a competitive edge in the future.
Conclusion
Peer Ledger’s Digital Product Passport, with its support for PEFCRs and integration of the EU’s Circular Footprint Formula, offers a strategic advantage for companies navigating CBAM. By accurately tracking lifecycle emissions, quantifying recycled content, and aligning with EU sustainability goals, businesses can reduce their CBAM liabilities and enhance their competitive position. Adopting tools that support transparency, and circularity will not only ensure compliance but also create long-term business value.
