Welcome to our series about CBAM — the EU’s new carbon emission regulation.
In this article, we will:
The Carbon Border Adjustment Mechanism (CBAM) is a new EU regulation designed to reduce global greenhouse gas emissions by imposing a carbon-related expense on imported goods. These goods - currently cement, aluminum, iron and steel, fertilizers, hydrogen, and electricity - were chosen by the EU as they contribute significantly to greenhouse gas emissions during their production processes.
CBAM also levels the market as high-carbon goods produced in the EU are already subject to a carbon-related expense via the Emissions Trading System (ETS).
Given their high-carbon nature, CBAM goods could form a significant part of your total greenhouse gas emissions and may have major financial consequences for your organization.
Timeline and Requirements:
There are three basic steps:
For step 3, until July 2024 you can follow these two steps to calculate emissions in compliance with CBAM:
From July 2024 it is mandatory to use actual data from producers.
If you import any of the goods covered by CBAM (iron & steel, aluminum, fertilizers, cement, hydrogen, electricity) then your company should already have import documentation for customs reporting. You will need to contact them to get a list of the goods (by CN code - see step 3), quantities imported and country of production of each good.
When calculating CBAM emissions, you will encounter three different sources of emission factors:
There are two key uses for data: compliance & reporting, and decision-making on how to mitigate (reduce) emissions. Ultimately, the producers (your suppliers) will need to provide you with the data you need, but until you have that data, you have two alternative choices - default factors and regional averages.
Default factors allow for easy compliance with CBAM reporting regulations but don’t give you any insights into how emissions vary by country of production. Regional averages give you a much better idea of what actual emissions are likely to be and can be used to benchmark your producer’s own data when you get it.
For compliance and reporting under CBAM, you need to follow the legislation and guidance outlined by the European Commission.
In order to provide the most accurate and reliable figures, the EU requires businesses to measure and report CBAM-related emissions using data sourced directly from suppliers – the producers or exporters of the CBAM goods. This method provides you with the most accurate emissions, crucial for navigating financial adjustments in 2026.
Until July 2024 if you don’t have actual data from your suppliers, you can instead use the European Commission (EC)-published default emission factors to estimate your emissions. The default factors are average values for the goods imported into the EU; they are therefore not country-specific. While this won’t provide the most accurate results, it is the simplest option for most businesses getting started with CBAM.
Since it’s unlikely that every one of your suppliers will provide you with these figures, you can rely on the EC’s default emission factors to fill in the gaps.
→ Explore default CBAM factors
The requirement to calculate CBAM emissions presents businesses with an opportunity to gain comprehensive insights into their supply chain. It provides useful information on where to focus reduction efforts not only to lower carbon tax exposure but also to propel decarbonization across the value chain.
Primary supplier data is key for accessing the most precise emission estimates. However, if this is not available, the next best approach is to use regional emission factors. These figures produce more reliable emission estimates than EC’s default emission factors by accounting for global variations in production emissions, largely influenced by regional energy sources used in manufacturing and different manufacturing processes.
→ Explore regional CBAM factors
The chart below demonstrates the difference between Default and Regional CBAM emission factors.
For example, the EC’s regional emission factor for aluminum from South Africa is 76% higher in intensity than the EC’s default factor. Similarly, fertilizers from China have a 38% higher regional factor compared to the default.
Using default factors masks these regional differences; using regional factors for your internal CBAM calculations provides a more accurate representation of your carbon footprint and potential carbon tax liability.
Once you’ve chosen whether to use the default or regional averages, you will need to match the goods you import with the emission factors for those goods.
The simplest way to do this is to use the Combined Nomenclature (CN) codes, the EU's coding system. It serves the EU's common customs tariff and trade statistics within and outside the EU. These codes will be located in the import documents already held by your business for customs reporting purposes. Using these CN codes simplifies calculations, automates mapping, and reduces errors.
→ Calculate CBAM emissions using CN codes
How to report starting July 2024: Check out the next post in our series, where Climatiq's Head of Carbon Accounting outlines how to make your reporting as accurate as possible →
