Fit for CBAM: background, key data and requirements
On October 1, 2023, the CBAM – the Carbon Border Adjustment Mechanism – became mandatory for many companies in the EU. This article will give you a quick overview of how the CBAM works and how you can prepare your company specifically for the new requirement.
To get started: What is the CBAM?
CBAM (“Carbon Border Adjustment Mechanism”) is the official title of the new Regulation EU 2023/956.
To understand the background to this regulation, it is best to go back to 2005.
This was the year in which the European Emissions Trading Scheme (EU ETS) was introduced; the European instrument for implementing the Kyoto Protocol.
In order to actually achieve the climate protection targets set, the EU has adapted the emissions trading system several times – most recently in 2021, as part of the Fit for 55 package.
The EU ETS aims to limit emissions with a cap and trade system.
An upper limit is set for the amount of emissions that companies are allowed to emit.
If these are not sufficient, allowances can be purchased.
This has been a problem in recent years.
In order to avoid the strict EU requirements and the associated costs, some companies have relocated their CO2-intensive production to countries with no or lower CO2 prices.
This phenomenon is also known as “carbon leakage” or “relocation of CO2 emissions”.
The CBAM now wants to counteract this. The goals at a glance:
- General strengthening of emission reduction measures
- Encouraging the reduction rather than displacement of emissions in production
- Protection of companies producing in the EU from competitive disadvantages
After publication on August 17, 2023, the CBAM officially came into force on October 1, 2023.
Anyone importing emission-intensive goods into the EU is now obliged to purchase offsetting CBAM certificates.
For the time being, however, companies are granted a transitional period.
We’ll take a closer look at this in a moment – but first an important question: who does the new CO2 border adjustment system actually apply to?
Who does the CBAM apply to?
CBAM initially affects all companies that import the following groups of goods in pure or processed form from non-EU countries:
- Iron and steel
- Cement
- Fertilizer
- Aluminum
- Hydrogen
- Electricity
The EU reserves the right to adapt regulations and product groups until 2026.
The scope of application will therefore be extended in the future.
The new regulations cover both direct production emissions and indirect emissions from the manufacture of primary products or the electricity required.
In contrast to the recently introduced CSRD, the CO2 border adjustment mechanism does not differentiate between turnover and employee figures.
The new system is therefore mandatory for almost all companies in the manufacturing and production industry, provided they import from third countries.
Are you affected? What your company has to do now
Let’s move on from theory to practice.
After coming into force on October 1, 2023, a transition period began.
During this period, your company is only required to report.
By 2030, all products that are subject to EU emissions trading should be included in the CBAM.
CBAM reporting obligation: requirements and timetable
Until the end of the reporting phase, you are required to create quarterly updated reports on the goods you have imported.
This belongs in the CBAM report
Even if it sounds like a lot of work: Stick to your obligations and check your supply chains.
The CBAM Regulation provides for “proportionate and dissuasive sanctions” in the event of non-compliance.
Even in the transition phase, penalties of 10 to 50 euros per non-reported tonne of CO2 emissions are envisaged.
Compensation obligation and certificate trading
From 01.01.2026, the following applies: All emissions that your company has not yet offset in the country of origin of your goods must now be taxed.
To do this, you first need a CBAM registration authorization for your company’s branch.
Only “approved registrants” will be entitled to purchase certificates and import CBAM goods from 2026.
You can then purchase unlimited certificates for your company on a central platform.
It is up to the applicant to calculate the necessary compensation and purchase a corresponding quantity of certificates.
The price is based on the weekly average price of EU ETS certificates.
In principle, you should always have enough certificates available to offset at least 80 percent of the imported goods.
The certificates are valid for two years and can be surrendered.
The CBAM is here – VERSO helps
As you can see: With the CBAM regulations, your company once again has a lot on its plate.
What is intended to be a sensible and above all important step for the environment and the economy is in practice associated with a lot of bureaucracy and effort – especially when it comes to collecting all the necessary data.
With VERSO, you can avoid the data chaos.
In the CBAM module of the Supply Chain Hub, you can automatically and efficiently record all the data that the new CO2 border adjustment system requires of you.
Watch a free demo now to see how it works:
* This information is summarized editorial content and should not be construed as legal advice. VERSO accepts no liability.
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