What is the EU Carbon Border Offset Mechanism (CBAM)?

From 1 August 2024, businesses importing goods into the European Union (EU) will have to adapt their carbon emissions reporting to significant changes. These changes are part of the EU's Carbon Border Offset Mechanism (CBAM), which aims to ensure greater accuracy and transparency in reporting emissions. The new regulations allow the use of default values for only 20 % of imported complex goods emissions data, which typically represent worst-case or average emissions across industries.

A major change is that up to 80 % emissions data must be based on actual data obtained from suppliers and manufacturers. This approach underlines the EU's commitment to make carbon reporting more reflective of actual emissions and for businesses to take concrete steps towards sustainability.

What is the EU's Carbon Border Offset Mechanism (CBAM)?

At a time when climate change is at the forefront of global debate, the EU's Carbon Border Offset Mechanism (CBAM) is a key policy in the fight against environmental degradation. This mechanism is essential for companies involved in international trade, especially those that cooperate with the EU. Let's take a closer look at what CBAM is, how it works, its requirements and implications for your company, and how Arbor can help you navigate this new environment.

What is CBAM?
The Carbon Border Offset Mechanism (CBAM) is an innovative policy of the European Union (EU) designed to address the issue of emissions offshoring. This phenomenon occurs when companies move to countries with less stringent environmental standards, leading to higher air pollution. CBAM works as an environmental tax that sets a price for the pollution associated with imported goods. The mechanism aims to encourage companies around the world to adopt greener practices, which will help reduce global emissions and promote a healthier planet.

CBAM is designed as a phased mechanism that began its operation on October 1, 2023. Initially, it will focus on industries with high emissions such as the production of cement, fertilizers, steel, aluminum, hydrogen and electricity. These sectors were selected due to their significant contribution to air pollution.

During the transition period from 2023 to 2025, importers will be required to keep detailed records of the emissions associated with their products, but will not yet have to pay for these emissions. However, from January 1, 2026, the EU will start charging fees for carbon dioxide emissions associated with the import of goods. This fee is intended to motivate companies to make greener decisions and ensure that imported goods meet the same environmental standards as goods produced within the EU.

What are the CBAM requirements?
From 2026, importers will be required to submit detailed quarterly reports on the quantity, type and carbon emissions associated with goods imported into the EU. These reports will have to include data on the country of origin of the products and the emissions associated with their production. Importers will also need to purchase CBAM certificates to cover the carbon emissions of their imports, ensuring compliance with EU climate targets.

The obligation to report data for CBAM began on October 1, 2023. However, the obligation to financially offset carbon emissions will not begin until January 1, 2026.

Who must comply with CBAM?
CBAM compliance is essential for importers of goods into the EU from non-EU countries, especially in high-emissions industries such as cement, steel and aluminium. Non-EU manufacturers exporting to the EU must also provide the necessary emissions data, which is crucial for larger organizations and suppliers involved in trade with the EU.

Why should you be interested in CBAM?
CBAM is not only about meeting regulatory requirements, but also about maintaining competitiveness in a rapidly changing global market. Along with the financial consequences, CBAM will also bring a competitive advantage to low-emission products and suppliers. Mandating detailed quarterly emissions reporting will encourage companies to gain a deeper understanding of their supply chains and production processes, which will require robust data collection and carbon footprint analysis tools.

Regulation (EU) 2023/956 establishing a carbon border compensation mechanism