Understanding the Carbon Border Adjustment Mechanism (CBAM)

The European Union’s Carbon Border Adjustment Mechanism (CBAM) is a pioneering initiative designed to place a carbon price on imports of certain goods, mirroring the costs that EU producers incur under the EU Emissions Trading System (ETS). This mechanism aims to prevent ‘carbon leakage’, where companies might relocate production to countries with less stringent emissions regulations, thereby undermining global climate efforts.

Key Features of CBAM:

• Scope: CBAM targets imports of carbon-intensive products such as steel, cement, aluminium, fertilisers, electricity, and hydrogen. Importers are required to report the embedded emissions of their products and purchase corresponding CBAM certificates.
• Implementation Timeline: The mechanism entered a transitional phase on 1 October 2023, during which importers must report emissions without financial obligations. From 2026, importers will need to purchase CBAM certificates to cover their emissions.

Implications for Businesses:

• Competitiveness: CBAM seeks to level the playing field for EU industries by ensuring that imported goods bear similar carbon costs, thus discouraging companies from shifting production to countries with lax emissions standards.
• Global Influence: The mechanism encourages non-EU countries to adopt carbon pricing policies to maintain access to the EU market, potentially leading to broader international climate action.

Challenges and Considerations:

• Compliance: Importers must accurately report emissions data, which can be challenging if suppliers lack precise information. This necessitates robust data collection and verification processes.
• Trade Relations: While CBAM aims to promote global emissions reductions, it may face criticism from trading partners concerned about its impact on their industries and economies.

Looking Ahead:

As CBAM progresses, businesses must stay informed and adapt to its requirements. Engaging in sustainable practices and reducing carbon footprints will not only ensure compliance but also enhance competitiveness in a market increasingly focused on environmental responsibility.

At GLEG, we are committed to guiding our clients through these regulatory changes, offering insights and strategies to navigate the evolving landscape of carbon compliance.

📩 Get in touch with us at hello@gleg.co.uk to discuss how CBAM may impact your business and how we can help.