Since October 2023, the CBAM has complemented the EU’s Emissions Trading System and posed significant challenges for companies. The first ten months provide a glimpse into the main stumbling blocks and what’s needed to overcome them.
The CBAM is a central pillar of the EU’s flagship climate program, the “Fit for 55” package. The regulation, which has been in force since October 2023, mandates EU-based importers of selected products to report on their emissions. At a later stage, it will also impose a carbon price on these imports. Building on the existing EU Emissions Trading System (EU ETS), the CBAM aims to equalize the cost of manufacturing between EU and non-EU manufacturers of emissions-intensive goods, prevent carbon leakage and galvanize momentum for climate action outside the EU.
As of today, goods from six sectors, as well as certain precursors and downstream products, are covered: Aluminum, Cement, Electricity, Fertilizers, Hydrogen, and Iron and Steel. However, Article 67 of the CBAM Regulation states that the EU Commission shall pursue the inclusion of additional industries by 2030 to align its scope with that of the EU ETS.
Affected products are determined by their CN code during the customs procedure. While procurement data can be helpful in identifying relevant goods, only customs declaration data is deemed suitable for final classification. Companies should therefore compare the 8-digit CN code of their customs declarations with the list of CN codes provided in Annex 1 of the CBAM Regulation. There are only few exceptions, such as imports from EFTA countries and consignments with a value of less than €150.
The regulation directly affects importers and customs representatives who import CBAM goods into the customs territory of the Union. Throughout the transitional phase from 2023 to 2025, their main responsibility is to comply with the quarterly reporting requirements mentioned above. On January 1, 2026, the implementation phase will begin, introducing a carbon price on the embedded greenhouse gas (GHG) emissions of imported goods. In-scope importers will have to purchase and surrender CBAM certificates, which are modeled on the EU ETS cap-and-trade system.
The past few months have shown that large manufacturers such as wind turbine producers, iron and steel wholesalers, the automotive industry and toolmakers are among the industries particularly impacted by the CBAM. As the regulation provides for very few exemptions, small traders and SMEs are also subject to the CBAM, even if they only import small quantities of covered products.
The regulation also indirectly affects all non-EU suppliers of CBAM goods. According to the EU, they should monitor product-related GHG emissions at their production sites and report them to EU importers. Local operators of such production sites are expected to follow a dedicated EU methodology for emissions monitoring, starting in 2025 at the latest. It is important to note that the CBAM Regulation does not stipulate any reporting obligations for third-country suppliers. EU importers of in-scope products are therefore dependent on their voluntary support.
To date, there is no clear guidance from the European Commission and national authorities on how to deal with cases of non-cooperation. The Commission has published guidelines and templates to support both importers and manufacturers. A key recommendation is, for instance, to include a specific clause on the sharing of GHG emissions data in purchasing agreements.
Almost ten months into the transitional phase, with the first two mandatory quarterly reports submitted and the third report due by the end of July, it is a good time to take stock and look at the main challenges companies have been facing so far.
A key pain point for many companies is the significant effort required to collect and manage data from multiple sources.
The transitional phase of the CBAM, which began on October 1, 2023, mandates companies to report the GHG emissions embedded in imported goods on a quarterly basis. The first two reports have been particularly challenging for the following reasons:
Effective communication and the continuous exchange of data are key to implementing the CBAM, but these processes present significant challenges.
The quality and completeness of supplier data is critical to meeting CBAM reporting requirements. However, the information provided by suppliers often falls short of expectations:
Overall, the CBAM is much more than a mere reporting exercise for EU companies. It has major implications for international supply chains and its success depends largely on close cooperation between importers, distributors and suppliers across different tiers. All these actors must be able and willing to collaborate and share data with one another on an ongoing basis. Capacity-building, engagement, new incentives and contractual obligations are just some of the tools available to EU companies to make sure they meet the requirements.
IntegrityNext has developed a standalone CBAM solution to help companies address many of the challenges described above. It is a one-stop shop for collecting, managing and monitoring CBAM data to fulfil the reporting obligations in a single platform. All relevant products, related CBAM data points and KPIs can be tracked in one dashboard.
It also provides carbon price projections for greater cost transparency ahead of the implementation phase starting in 2026. Many processes are automated and streamlined to meet the regulatory requirements with minimal effort.
The CBAM solution works as follows:
The IntegrityNext platform includes customizable features for improved workflow and refinement to suit a company’s business context. For more information, please visit our CBAM solutions page or download our product sheet.
To learn more about the benefits of our platform, please schedule a personal demo with one of our experts.
