The Carbon Border Adjustment Mechanism (CBAM) is a new EU policy set to come into full effect in 2026. It’s designed to level the playing field for European industries by imposing a carbon price on imports from countries with weaker climate policies. This means that exporters to the EU will need to understand and comply with CBAM regulations to avoid additional costs and potential trade barriers.
What is CBAM?
CBAM requires importers of certain goods into the EU to purchase carbon certificates corresponding to the embedded carbon emissions of those goods. These certificates can be obtained through the EU’s Emissions Trading System (ETS) or by submitting verified emissions data from the country of origin. The goal is to ensure that imported goods face similar carbon costs as those produced within the EU.
Which Goods Are Affected?
CBAM initially covers imports of iron and steel, aluminum, cement, fertilizers, and hydrogen. However, the scope of the mechanism is expected to expand over time to include other sectors.
What Does CBAM Mean for Exporters?
- Additional Costs: Exporters may face increased costs due to the need to purchase carbon certificates. The exact cost will depend on the carbon intensity of the product and the price of carbon certificates on the ETS.
- Documentation Requirements: Exporters will need to provide detailed information about the carbon footprint of their products, including emissions data from the production process.
- Risk of Trade Barriers: Non-compliance with CBAM regulations could lead to trade barriers, such as tariffs or import restrictions.
How to Prepare for CBAM?
- Understand Your Product’s Carbon Footprint: Conduct a thorough assessment of the carbon emissions associated with your product’s production, transportation, and other relevant stages.
- Monitor ETS Prices: Keep track of the price of carbon certificates on the ETS, as this will directly impact the cost of CBAM compliance.
- Explore Mitigation Strategies: Consider options for reducing your product’s carbon footprint, such as adopting more energy-efficient processes or using renewable energy sources.
- Engage with Your EU Customers: Communicate with your EU customers about your CBAM compliance efforts and any potential cost implications.
Conclusion
CBAM represents a significant change in the global trading landscape. By understanding its implications and taking proactive steps to comply, exporters can minimize the impact on their businesses and ensure continued access to the EU market.
