CBAM Explained: Compliance Guide for Supply Chain & Procurement

As the global focus on climate change intensifies, policymakers are implementing measures to combat emissions and promote sustainable supply chain practices. One such measure gaining momentum is the European Union's Carbon Border Adjustment Mechanism (CBAM) .

Designed to prevent carbon leakage and incentivize emission reductions, CBAM has major implications for supply chain and procurement professionals. In this blog, we'll explore what CBAM includes, its key requirements, and how supply chain and procurement professionals can prepare for its impact. 

Want to dig into sustainable procurement? Read our full guide to get started.

What is the Carbon Border Adjustment Mechanism?

CBAM is a proposed mechanism by the EU that aims to level the playing field for industries subject to different carbon pricing regimes. It involves imposing carbon tariffs on certain imported goods based on their carbon emissions.

CBAM seeks to ensure that imported products meet the same environmental standards as those produced by EU member states, thereby promoting global emissions reduction efforts and protecting EU industries from carbon leakage. 

CBAM will come into effect gradually, with full implementation expected by 2026 following a transitional phase from 2023 to 2025. This requires proactive steps now to prepare for compliance and navigate this transformative initiative successfully.

Key Requirements of CBAM

Carbon Footprint Assessment

Under CBAM, importers of cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen products will be required to calculate and report their imports' embedded carbon emissions. This entails conducting a life cycle assessment to determine the carbon footprint associated with production, transportation, and other relevant factors.

Carbon Price Adjustment

Imported goods will be subject to a carbon price adjustment based on their carbon content. The carbon price will be determined by the EU's carbon pricing mechanism, such as the EU Emissions Trading System (EU ETS) or an equivalent carbon tax. 

Compliance Documentation

Importers will need to provide documentation demonstrating compliance with CBAM requirements, including carbon footprint assessments and proof of payment for carbon tariffs. 

Verification and Enforcement

CBAM will involve verification mechanisms to ensure the accuracy and integrity of carbon footprint assessments. Importers found to be non-compliant may face penalties and corrective actions. 

Preparing for CBAM

Assess Supply Chain Emissions

Procurement professionals should collaborate with suppliers to assess products' carbon footprints throughout the supply chain. This includes identifying emissions hotspots, evaluating alternative sourcing options, and implementing emissions reduction strategies. 

Enhance Transparency and Traceability

Establish transparent communication channels with suppliers to obtain accurate data on product carbon emissions. Implement traceability measures to track the origin and environmental impact of imported goods.

Stay Informed and Engage with Stakeholders

Stay abreast of developments related to CBAM and engage with industry associations, policymakers, and other stakeholders to understand implications and advocate for fair and effective implementation.

Invest in Sustainable Procurement Practices

Embrace sustainable procurement practices that prioritize environmentally friendly products and suppliers with low carbon footprints. Consider certifications and labels that demonstrate compliance with CBAM requirements. 

 Here’s a short video on how to tackle Scope 3 emissions!  

Why the Right CBAM Software Tool is Essential for Compliance

CBAM presents an opportunity to drive environmental impact, balance market competition, and fight climate change together. CBAM compliance is achieved together with the right tools and partners who have your back.  

This tool should collect and integrate data from various sources, such as customs records and supplier information that help keep track of indirect emissions. Understanding the data points you have and identifying the gaps is crucial for comprehensive carbon accounting. A robust CBAM tool should feature a questionnaire functionality to request missing data from suppliers seamlessly. Additionally, the tool should generate ready-made CBAM compliance reports, helping you stay meet your sustainability reporting requirements.

Automate CBAM Reporting with Sievo

The European Commission's legislative proposals present business implications for companies importing specific goods into EU countries, not just EU businesses. Staying compliant with the EU Commission's evolving regulations requires accurate and efficient CBAM reporting. Investing in the right software ensures your preparedness.

Sievo simplifies CBAM reporting and reduces the manual effort involved. Sievo works with 2% of the world's GDP procurement data to help clients identify their CBAM boundaries within their spend, a task often complicated by the nature of procurement data itself. Our automated system streamlines data collection, simplifies CBAM report filling, and generates compliant files for EU submission platforms. This saves you time, minimizes errors, and frees your team to focus on other priorities.

While manufacturers importing CBAM goods into the EU represent a key user group, Sievo can benefit any EU-based company purchasing these goods. Sievo maintain an industry-agnostic approach, recognizing that CBAM regulations impact various sectors, from agriculture and energy to many others.

Sievo's solution primarily serves procurement teams, dedicated ESG teams, and sustainable procurement managers within organizations. These roles are crucial for successful CBAM implementation, given the intersection of procurement data and environmental regulations.

Learn how Sievo can simplify your CBAM compliance!