The Carbon Border Adjustment Mechanism (CBAM) is an important regulation of the European Union that aims to prevent the relocation of production processes and their CO2 emissions to non-EU countries (carbon leakage). CBAM not only controls European companies but also supports them by requiring emissions-intensive imports to be made transparent and to be compensated.
CBAM requires the importer to declare the emissions in a product that is imported into the EU and to make a compensation payment by purchasing CBAM emission certificates. Initially, this concerns direct emissions from products such as steel, iron, aluminium, fertilizers, cement and electricity. These were selected due to their significant share of total EU emissions. In the future, other products and indirect emissions will also fall within the scope of CBAM.
CBAM-timetable
The EU regulation on CBAM has already come into effect. The reporting obligation for emissions began on October 1, 2023 with the start of the transition phase. The purchase of emission certificates is expected to start in 2026. However, the exact dates and scope are still pending and depend on the approval of the EU Parliament.
What are the effects?
CBAM will have a significant impact on global supply chain processes. One key aspect is the collection of information on the CO2 emissions of materials from suppliers. Based on the weekly average price of a ton of CO2 from the EU Emissions Trading System (ETS), the price for the product is calculated. Importers must then pay this price for the product to be imported. Producers outside the EU can provide their customers with proof of contributions already paid to the local emissions trading system (ETS). These carbon taxes paid in the country of origin can then be used by importers to reduce the price.
Challenges and risks
Companies face several challenges in meeting the requirements of CBAM. These include data collection of product emissions from suppliers, data storage, calculation of emissions and reporting to authorities and customers. A common problem is calculating and verifying the product carbon footprint. In particular, companies that have customs clearance carried out by transport service providers face additional difficulties in data collection.
Solutions and possibilities
In order to meet the requirements of CBAM, you as a company must expand your capabilities. This includes cross-company data exchange, calculation of embedded emissions, management of carbon certificates and customs declarations. SAP offers a broad portfolio of solutions to support you in overcoming these challenges. In particular, Sustainability Footprint Management makes a significant contribution to transparency. However, this tool is only one part of an integrated landscape. You should therefore start thinking today about the architecture of tomorrow and turn it into an upcoming transformation roadmap.
Outlook
CBAM presents you with a number of challenges, but also opportunities. It is important to prepare for these changes in advance and take the necessary measures to meet the new requirements. As a consultancy, we are committed to helping you successfully implement CBAM and develop sustainable solutions for a greener future.
If you have any questions about CBAM or need support, please do not hesitate to contact us. We will be happy to help you prepare and take advantage of the opportunities that CBAM offers. With cbs.zero, we are helping companies transition to sustainable and future-proof organizations. We offer our customers tangible approaches to measuring, analyzing, and reducing their carbon footprint using SAP tools.
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