.jpg){kind=icon}
As global concerns over climate change intensify, the European Union (EU) has introduced a groundbreaking initiative aimed at curbing carbon emissions from imported goods—the Carbon Border Adjustment Mechanism (CBAM). Launched as part of the EU’s broader European Green Deal, CBAM is designed to address "carbon leakage," where companies relocate carbon-intensive production to countries with less stringent emissions regulations. By placing a carbon cost on imported goods, CBAM ensures that foreign products meet the same climate standards as those produced within the EU.
Starting in 2026, companies importing high-emission goods—such as steel, aluminum, cement, fertilizers, electricity, and hydrogen—will be required to purchase CBAM certificates to cover the carbon footprint embedded in these imports. This mechanism reflects the EU’s commitment to creating a fairer, greener economy while encouraging global industries to adopt more sustainable practices. However, with CBAM’s transitional phase already in effect, companies need to understand the steps involved in calculating emissions, purchasing certificates, and complying with the new system to stay ahead of the curve.
This blog breaks down the CBAM certificate purchasing process, its key benefits, and how businesses can navigate compliance efficiently while reducing their carbon liabilities.
How Peer Ledger Can Help
Peer Ledger’s traceability solutions help businesses track carbon emissions across their supply chains, making compliance with CBAM more manageable. By leveraging advanced technologies, companies can improve emissions data reporting accuracy, streamline reporting, and ensure timely purchases of CBAM certificates. You can read more about Peer Ledger CBAM help here (link other blog here)
What Are CBAM Certificates?
CBAM certificates represent the carbon emissions embedded in goods imported into the EU. Each certificate corresponds to one tonne of CO2, and their price is tied to the EU's Emissions Trading System (ETS). Importers are required to purchase and surrender certificates to match the emissions of imported goods, ensuring accountability for their carbon footprint.
CBAM’s Transitional Phase
On 1 October 2023, CBAM entered its transitional phase, giving businesses and authorities time to adjust. During this phase, importers of carbon-intensive goods like cement, iron, steel, aluminum, fertilizers, electricity, and hydrogen must report the greenhouse gas (GHG) emissions embedded in their imports but are not yet required to purchase or surrender certificates.
This phase serves as a pilot to refine the methodology for full implementation in 2026. Importers can report emissions using three methods during this phase: full reporting based on the new EU methodology, reporting using an equivalent method, or reporting based on default values (until July 2024). From January 2025, only the EU method will be accepted. The European Commission has provided tools, guidance, and training materials to help businesses transition smoothly.
The scope of CBAM will continue to evolve, with a review of its functioning and potential expansion to other products by 2030. This gradual approach allows for refining the system while encouraging industries to adopt sustainable practices. By 2030, additional sectors – including oil refining, all metal, pulp & paper, glass & ceramics, acids & organic chemicals, aviation, lime, as well as other sectors – will have to abide by the CBAM regime.
Steps to Purchasing CBAM Certificates
1. Calculate Emissions: Companies must determine the carbon emissions embedded in imported products such as steel, aluminum, cement, fertilizers, electricity, or hydrogen. Importers can either provide actual emissions data from exporters or use the EU's default values.
2. Open a CBAM Account: Importers must open an account in the CBAM Registry, managed by the European Commission. This account tracks the certificates needed for compliance.
3. Purchase Certificates: CBAM certificates are issued by national authorities in EU countries, with prices linked to the ETS. Certificates are non-tradable, and companies must purchase them based on the previous week's ETS price.
4. Surrender Certificates: At the end of each year, companies surrender certificates equivalent to their imports' emissions. They submit an annual CBAM declaration, detailing the volume of goods, their emissions, and the surrendered certificates. Unused certificates can be kept for future use or refunded.
5. Adjust for Carbon Pricing in Exporting Countries: If the exporting country has its own carbon pricing system, importers can deduct these costs from their CBAM liability to avoid double taxation.
6. Penalties for Non-Compliance: Companies that do not surrender enough certificates will face fines and potentially face restrictions on future imports.
Key Benefits of CBAM Certificates
CBAM certificates promote fair competition by reducing carbon leakage and ensuring that imported goods bear similar carbon costs as those produced domestically. They incentivize international producers to adopt greener practices, support the EU’s broader climate goals, and encourage transparency in supply chains.
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.
Conclusion
As the world moves toward a low-carbon future, CBAM plays a crucial role in leveling the playing field for carbon-intensive industries. The transition to CBAM certificates represents a significant step in global trade and sustainability, encouraging both EU and non-EU businesses to prioritize carbon reduction. In preparing early and leveraging technology to enhance supply chain transparency, companies can align with CBAM regulations and position themselves as leaders in sustainability. The transitional phase offers a valuable opportunity to learn, adapt, and ensure smooth compliance ahead of the definitive system’s full implementation.
References:
European Commission. (2023). Carbon Border Adjustment Mechanism. European Commission. https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en
Croker, T. (2024). How to Calculate Emissions for CBAM Reporting. Climatiq. https://www.climatiq.io/blog/how-to-calculate-emissions-for-cbam-reporting
