Understanding the Carbon Border Adjustment Mechanism (CBAM)
The importance of CBAM
The Carbon Border Adjustment Mechanism (CBAM) is a vital component in the EU’s efforts to address carbon leakage and protect EU industries from being disadvantaged by imports from regions with less stringent carbon regulations
The CBAM achieves this by levying a cost on embedded emissions for companies importing covered goods into the EU. Because this levy will be based on the live EU Allowance price, it creates a new financial risk that needs to be managed.
The EU CBAM requires importing companies to measure the embedded carbon emissions of imported goods and to purchase equivalent CBAM certificates.
The CBAM is designed to equalise the price of carbon between products made within the EU and imports, to ensure the EU’s climate objectives are not undermined by production relocating to countries with less ambitious climate change policies.
Who is affected by the CBAM?
The broad scope of the EU CBAM, which extends to products as fundamental as screws, nuts, and bolts, signifies that a wide array of importers will face new compliance obligations. Consequently, this creates an urgent need for these companies to manage not only compliance but also the financial risks associated with CBAM.
Critically, the CBAM levy will be based on the weekly average of the price of EU Emissions Trading Scheme (EU ETS) allowances released onto the market via auctions, exposing importers to the same carbon market pricing risks as domestic EU producers.
Cement
Iron & Steel
Aluminium
Fertilisers
Electricity
Hydrogen
The CBAM timeline
Understanding the financial implications of CBAM
Failure to adapt could result in substantial cost increases, impacting profitability and market competitiveness. Therefore, proactive carbon risk management strategies are essential for businesses affected by the CBAM to safeguard their operations and maintain their market position in an increasingly regulated environment.
CBAM compliance requirements and timelines
To comply with CBAM, businesses must follow strict reporting and payment schedules. During the transitional period (October 2023 – December 2025), importers must report the carbon emissions embedded in their goods, without financial obligations.
After 2026, importers will need to purchase CBAM certificates to cover these emissions. Compliance will involve regular emissions reporting and certificate purchases to avoid penalties.
Discover how ready you are for CBAM →
Lock in the price of CBAM Certificates today
The certificate price will be based on the average auction price of EU Allowances (EUAs), the currency of the EU Emissions Trading System (EU ETS). With prices for EU Allowances highly volatile and expected to climb steeply, businesses face significant financial uncertainty when planning for the future.
Without a strategy to manage these costs, companies risk exposure to unpredictable price increases that could impact profitability and competitiveness.
Discover how you can lock in price certainty, today.
The EU’s Carbon Border Adjustment Mechanism (CBAM) is fundamentally changing the cost structure for carbon-intensive imports, leaving businesses exposed to volatile carbon pricing risks.
Our CBAM solutions are tailored to help you stay ahead of regulatory demands, ensuring your business is positioned for long-term success in the low carbon economy.
Discover how our solutions empower you to understand and manage the financial risks of your net zero journey. Contact us today on +44 20 3637 1055 or fill in the contact form and we’ll give you a call back.
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