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 CBAM?
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 within the EU, 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. 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.
Walk the Talk
Investing in the right software ensures you are fully prepared for the Carbon Border Adjustment Mechanism's requirements.
Sievo CO2 Analytics solution sets your team on the way to Net Zero. Our advanced analytics track spending across your supply chain, enabling you to find key sources of emissions. AI-powered classification, personalized insights, and one-click actions allow you to address emissions hotspots with precision.
With a classification coverage of 98% and the highest data accuracy of 94% on the market, Sievo empowers you to make decisions for a greener world that delivers a lasting impact.
Want to hear how to address the sustainability targets for your supply chain? Let’s discuss!
