Understanding the Carbon Border Adjustment Mechanism (CBAM)

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Navigating the EU CBAM in Global Trade supply chains

As Europe continues its drive towards becoming the world’s first climate-neutral continent by 2050, the Carbon Border Adjustment Mechanism (CBAM) represents a pivotal shift in how carbon emissions are managed across global supply chains.

Part of the broader European Green Deal, CBAM is designed to ensure that goods imported into the EU are subject to the same carbon pricing as those produced within its borders. From January 2026, importers of CBAM-regulated goods will require to be authorized declarants and purchase CBAM certificates, marking the start of financial obligations under the mechanism.

The introduction of CBAM is a direct response to the risk of "carbon leakage," where companies could evade the EU's stringent emissions rules by relocating production to countries with lower environmental standards or by importing cheaper, carbon-intensive goods. By imposing a carbon cost on these imports equivalent to the EU's own Emissions Trading System (ETS), CBAM aims to level the competitive playing field. This not only protects the integrity of Europe’s climate policies but also encourages global partners to accelerate their own decarbonization efforts.

Products in Scope

CBAM initially targets imports of carbon-intensive goods in the customs territory of the EU, focusing on 6 sectors such as cement, electricity, fertilizers, aluminum, iron, steel, and hydrogen. During its transitional phase from October 1st, 2023 to December 3st, 2025, the regulation requires importers to report greenhouse gas emissions embedded in these imports, with the scope set to expand. Between 2026 to 2034, CBAM aims to include additional goods produced in sectors covered by the EU Emissions Trading System (ETS), to create a level playing field. This expansion will gradually cover both direct and indirect emissions, ensuring a more comprehensive approach to preventing carbon leakage and strengthening global climate action.

Check some examples of the products in scope

Check some examples of the products in scope

Check some examples of the products in scope

Check some examples of the products in scope

Check some examples of the products in scope

Check some examples of the products in scope

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With a clear focus on carbon-intensive goods, the CBAM’s implementation is divided into phases to ensure a gradual and structured transition for both EU and non-EU businesses. The regulation is currently in its transitional phase, running from 2023 to 2025. During this period, importers are required to report on the GHG emissions embedded in their imports, serving as a learning phase to refine methodologies. As of 2026, CBAM will enter its definitive phase, which is the financial phase, involving the purchase and surrender of CBAM certificates to cover emissions in the form of a carbon price.

CBAM Implementation Timeline

Transitional Phase
(1 October 2023 - 31 December 2025)

During this transitional phase, importers of carbon-intensive goods are required to submit quarterly reports detailing both direct and indirect greenhouse gas (GHG) emissions embedded in their imported CBAM goods. Direct emissions refer to those arising from the production process itself, including emissions from heat flows, material flows, waste gases, and any precursors involved in producing the final good. Indirect emissions are associated with the energy used in the production process and any emissions from precursor goods. All emissions must be reported in metric tonnes of CO2 equivalent (tCO2e).

During the initial period (covering the 4th quarter of 2023 and the first two quarters of 2024), importers were still allowed to rely on the use of default emission values made available by the European Commission to estimate embedded emissions. However, starting from July 1, 2024, all reports must reflect actual emissions data, with only limited use of default values allowed — up to 20% of the total embedded emissions and only for complex goods. This shift marks the end of the flexible reporting period, and importers must now ensure their data collection and reporting mechanisms are fully aligned with the CBAM requirements. 

(Reports can be submitted using default values)

Reports must be submitted with actual emissions data; up to 20% can be based on default values for complex goods

Definitive Phase
(Starting 1 January 2026)

Beginning from 2025, importers must register as authorized CBAM declarants. As of 2026, the authorized CBAM declarants must start purchasing CBAM certificates that cover the emission content of their imported CBAM goods. This marks the start of the financial obligations under CBAM, where importers must ensure they have sufficient certificates to cover the emissions of their goods. Failure to comply with the obligation to possess and surrender sufficient CBAM certificates may result in penalties outlined in the regulation.

  • Become an authorized CBAM declarant
    Ensure registration as an authorized declarant to continue importing CBAM goods.  EU customs authorities will not allow entry of CBAM goods into the customs territory of the EU by parties other than authorized CBAM declarants.
  • Annual CBAM declaration 
    Submit a yearly CBAM declaration by May 31of each year, detailing the total carbon emissions embedded in CBAM imports and the number of CBAM certificates surrendered.

 

  • Purchase CBAM certificates
    Purchase CBAM certificates corresponding to the emissions embedded in imported CBAM goods, before the imports.
  • Surrender CBAM certificates
    Surrender the required number of CBAM certificates annually to cover the emissions associated with CBAM imports.

 

What CBAM means for your business

The CBAM represents a significant shift for businesses engaged in importing CBAM goods into the EU. As of 1 October 2023, the reporting obligations are in effect, making it urgent for businesses to align with these new requirements. Companies may face increased costs from their suppliers and also increased cost of compliance with the obligations of CBAM regulation. Understanding the requirements and preparing accordingly will be crucial to managing your operational and financial impact effectively, including smooth functioning of your supply chains and business continuity.

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Key Actions to Take Now

Get access to your key data for CBAM reporting

Establish collaboration/effective communication with suppliers to provide you the data on the emissions associated with the production of the imported goods subject to CBAM.

Be prepared to do the CBAM reporting in a compliant format

Implement Robust Reporting Systems:
Establish comprehensive reporting mechanisms for embedded emissions. Register foreign installations in the EU CBAM registry, and ensure compliance with quarterly reporting requirements for direct and indirect emissions.

Refine your supply chain:
Identify and mitigate potential weaknesses in your supply chain by forming strategic partnerships and adjusting your sourcing strategy to align with your carbon reduction goals.

Develop a Carbon Reduction Strategy:
Integrate greenhouse gas (GHG) reduction goals into your strategic planning. Consider options such as new suppliers with lower emissions, enhanced manufacturing processes, and more sustainable logistics practices.

Optimising Your CBAM Compliance with PwC

How We Can Help

Our dedicated CBAM experts are here to assist your company in navigating the complexities of the CBAM. We start by evaluating your compliance obligations and provide comprehensive support throughout the reporting process. This ensures that your company meets its reporting requirements for all imported products across the EU. Our scope of assistance includes:

CBAM compliance in the transitional period

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PwC's SAP CBAM Module: CBAM reporting made easy

Our SAP CBAM module is one of our CBAM tool, integrated in our SAP innovation award winner tool Check Your Value Chain solution. It allows EU importers to file their quarterly CBAM reports with a time-, resource and cost-efficient approach.  Its main benefit is to automate your in-house CBAM reporting with reliance on actual emissions values and your supplier's installation data.

Download our flyer for more information

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