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 imports. These imports—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: high-carbon goods produced in the EU are already subject to a carbon-related cost via the Emissions Trading System (ETS).
Given their high-carbon nature, imports subject to CBAM 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 could 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 anything covered by CBAM (iron and 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), the quantities imported, and the 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: 1, compliance and reporting, and 2, decision-making on how to reduce emissions. Eventually, the producers of the imports (your suppliers) will need to provide you with the data you need for CBAM reporting. Until you have that data, you have two choices: default factors and regional averages.
Note: from 1st July 2024, reporting companies must use actual data from suppliers for CBAM reporting unless it's genuinely impossible.
Default factors allow for simplified calculations 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 now 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—these are the producers or exporters of the CBAM products that you purchase. This method provides you with the most accurate emissions estimates, which will be crucial for navigating the financial adjustment phase beginning in 2026.
Note: From July 2024, you must use actual data from your suppliers for CBAM reports. You may only use default values if you cannot get real data from suppliers, and the default values are only used to calculate emissions for minor parts of the production process. Read more about this in our blog on how to report from July 1st 2024 onwards. In this case, CBAM rules require importers to justify the use of default values and keep evidence showing why real data couldn't be obtained. They cannot be used as the main reporting basis.
Until July 2024, if you didn’t have actual data from your suppliers, you could instead use the European Commission (EC)-published default emission factors to estimate emissions. The default factors are average values for 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 to calculate emissions.
→ Explore default CBAM factors
The requirement to calculate CBAM emissions presents businesses with an opportunity to gain comprehensive insights into their supply chain. It not only provides useful information on where to focus reduction efforts and therefore reduce your obligation to pay carbon tax, but also to propel decarbonization across your 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 as they account for global variations in production emissions, which are largely influenced by the energy sources used in manufacturing processes, such as coal or nuclear.
→ 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 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 →
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