The Carbon Border Adjustment Mechanism (CBAM) is a carbon tariff that is payable on imported materials that are considered carbon intensive. The transitional period of CBAM started in October 2023 and will run until the end of 2025. The charge was implemented by the European Commission and applies to carbon-intensive goods imported into the EU. The CBAM mechanism introduced stringent greenhouse gas reporting requirements for importers, specifically on carbon-intensive products.

CBAM is intended to operate alongside the EU’s Emissions Trading System (EU ETS), which is the largest carbon-pricing mechanism globally.

CBAM is intended to operate alongside the EU’s Emissions Trading System (EU ETS), which is the largest carbon-pricing mechanism globally.

What are carbon-intensive products?

A product is considered carbon intensive if its production process is carbon-intensive, releasing more CO2 into the atmosphere. For example, energy generated from fossil fuels is considered carbon intensive as the process generates carbon emissions.
One of the most carbon-intensive products that is subject to CBAM is cement.

The European Commission’s initial sectors identified whose production is carbon intensive included:

• Aluminium
• Cement
• Electricity
• Fertiliser
• Hydrogen
• Iron and steel

The UK CBAM sectors are identified as per below:

• Aluminium
• Cement
• Ceramics
• Fertiliser
• Glass
• Hydrogen
• Iron and steel

What is a CBAM certificate, and how much do they cost?

The main phase of CBAM begins in 2026. From that point, importers will need to buy CBAM certificates based on the carbon emissions associated with their products. The cost of these certificates is tied to the price of emission allowances in the EU ETS, currently around €85/tonne of CO2e, and predicted to rise to between €100-150 by 2030. If a carbon price has already been paid in the country where the goods were produced, this will reduce the number of CBAM certificates required.

This system helps ensure that carbon costs for both foreign and domestic products sold in the EU are similar. Unlike the previous system of free emission allowances, CBAM not only

This system helps ensure that carbon costs for both foreign and domestic products sold in the EU are similar. Unlike the previous system of free emission allowances, CBAM not only increases revenue for the EU ETS (as free allowances are gradually removed) but also encourages higher carbon pricing and industrial decarbonisation in other countries.

The Carbon Border Adjustment Mechanism reporting process

As a customer importing energy intensive products, you are required to report on the greenhouse gas emissions of your imports on a quarterly basis. This CBAM report is submitted to the European Commission through the CBAM Transitional Registry.

As a supplier to the EU, it’s important to consider that your customers may require help and support in order for them to calculate embedded emission accurately. And, to stay competitive, UK businesses need to consider what data they should have readily available to support their customers. As a UK organisation exporting to the EU, you may need to consider collating the below data:

• Emissions (both direct and indirect)
• Country of origin
• Commodity codes of product(s) supplied

In addition to the above, the EU importer must report on specific qualifying parameters under the CBAM, which vary based on the type of goods. For instance, when importing cement, the total clinker content must be disclosed; for mixed fertilizers, the contents of various nitrogen forms need to be reported. UK exporters of applicable products may also be required to identify and monitor the relevant parameters.

How can your business prepare for CBAM?

Many of the products that are within the scope of CBAM tax are likely to be included within your supply chain. This could be raw materials or a finished product. It’s important that your team are educated on how to predict, monitor, and report on the financial impacts of CBAM. You should also consider whether there are steps you can take to evaluate your supply chain to reduce costs, and carbon footprint.

Here is a guide on how your business can prepare for Carbon Border Adjustment Mechanism:

• Conducting a scenario analysis to assess emissions linked to imported goods subject to CBAM, along with their potential impact. Collaborating with suppliers and manufacturers to collect emissions data for these imports.
• Working alongside climate risk and opportunity teams to calculate product volumes and the corresponding carbon pricing, which will help gauge CBAM’s financial implications for the business.
• Registering your company with the appropriate regulatory authorities for importing. Evaluating whether goods have already been carbon priced in the country of origin or purchase to prevent double pricing.
• Implementing systems to gather emissions data, report findings, and manage payments in compliance with CBAM regulations. For larger organisations we would advise to assess internal resources and define clear roles and responsibilities for managing these tasks.

CBAM future plans

Following the definitive CBAM commencing in January 2026, the full embedded emissions will be covered from 2034 onwards. The EU also intends to evaluate and possibly broaden the scope of the Carbon Border Adjustment Mechanism (CBAM) by 2030. This is with the goal of covering more than 50% of emissions in the EU Emissions Trading System (ETS) sectors by the complete implementation of CBAM in 2034.
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Carbon Border Adjustment Mechanism (CBAM) FAQs

Which emissions does the CBAM currently apply to?

• Scope 1 emissions – Direct greenhouse gas (GHG) emissions released from sources owned/controlled by an organisation. These may be from vehicles or fuel use etc.
• Scope 2 emissions – Indirect emissions produced from the energy generation purchased by a business. This may include electricity, steam, heat/cooling etc.

Do I need to register for the CBAM?

Importers within the EU or indirect customs representatives must register as authorised CBAM declarants to fulfil CBAM obligations. To do this, operators will need to contact the National Competent Authority (NCA) of the Member State where they are established.

Does the CBAM affect UK businesses that are not within the EU?

Yes, whether you are importing or exporting to/from the EU, you will have CBAM reporting obligations.

Who pays for the Carbon Border Adjustment Mechanism?

The UK CBAM charge will be payable by the importer of goods that fall within the energy intensive sectors/scope.

Are there any penalties for non-compliance to CBAM?

Yes, it could result in financial penalties. It may also have an impact on your future trading abilities within the EU.

Help with securing your business energy contract

Our objective is to take the pressure off you and provide a seamless service that will ultimately benefit your organisation.

If you would like to arrange a free consultation with one of our energy specialists to discuss how we can assist you with your energy, please contact us.

We hope you have found this blog both interesting and valuable. Feel free to share your thoughts or questions on this via email at info@consultivutilities.com.

Feature image – Credit: Image by jcomp on Freepik