CBAM Emission Calculation Explained – A Supplier’s must read

What is CBAM? – In short

Between October 1st, 2023, and June 30th, 2024, EU importers of the before-mentioned products were required to track their imported goods using CN codes and compile CBAM reports, mapping each product to a default emission factor provided by the EU. This meant no action from suppliers was required.

Starting July 1st, 2024, however, CBAM reports based on EU default values will no longer be accepted. International manufacturers must calculate their CBAM emissions using locally approved standards for Q2 and Q3 2024. After that, they will have to smoothly transition to the CBAM-specific EU method, mandatory from 2025 onwards.

The overall macroeconomic objective of CBAM is to fill the emission data gap of carbon-intensive imports flowing into the EU. This allows the EU to kickstart a fair pricing of emissions starting from 2026, covering both local EU production and imports equally protecting the EU local industry and eliminating untracked carbon leakage.

Necessary data requirements for CBAM emission calculation

Manufacturers must collect the following data, necessary to calculate and report their CBAM emissions before the end of October 2024:

1. Fuel and gas consumption (in tons) of their factory or, better, separately for each process. 
2. Other input materials (in tons, e.g., coke, scrap, mineral elements) used in each production process. 
3. Electricity consumption (in kWh) related to the production of the goods, separately for each production process and excluding office consumption, if possible.

Once this data is available, the following production parameters will need to be retrieved too:

• Total production output of the factory or each process, in tons per year or quarter. 
• The single net weight and CN code of each product sold to the EU. 
• Possible deductions, if available: electricity from office use.

The reference period of all mentioned datapoints can be either yearly or quarterly, as both options are allowed by the CBAM regulation. Quarterly reporting is the preferred option in the short term as it stimulates ongoing and trusted communication between importers and exporters, thereby decreasing the risk of fines. 

1. Best-in-class: prepare Q2/2024 data now and repeat the procedure at the beginning of October with Q3 data and then submit the data to EU clients. 
2. Second-best: calculate emissions with yearly 2023 data.

Calculating CBAM emissions 

Before calculating CBAM emissions, an important distinction must be made. CBAM emissions can be calculated by consolidating all processes into one or for each process separately, depending on whether intermediate goods are also exported to the EU.

Bubble approach: if, for example, your factory is composed of 2 processes, and 100% of the output of process 1 flows into process 2, then those two processes can be consolidated and considered as one large process. This means quarterly or yearly fuel, electricity, and other input material consumption of both processes can be multiplied by their specific emission factors, retrievable on the Guidance document on CBAM implementation for installation operators outside the EU. 

Process-by-process: if, for instance, your factory exports to the EU semi-finished products in-between the two example processes, meaning less than 100% of the output of process 1 flows into process 2, then two separate calculations need to be done to ensure that each exported product’s carbon footprint includes the correct consumption figures of fuels, electricity, and other input materials. 

Tier 2, 3, etc. Suppliers must report on CBAM too! – Starting from Q3/2024 

Starting from October 31^st, importers will need to report real values from suppliers. More precisely, at least 80% of the product emissions (or product carbon footprints, PCF) must be calculated with real factory values, leaving only room for 20% of it being based on default values (EU-based or from other scientific databases).  

In most cases, but especially in the iron, steel, and aluminium industry, tier 1 suppliers will almost never reach the needed 80% threshold alone, as most emissions happen during the production of the raw material itself, thus, in the factories of tier 2 suppliers or beyond.  

If upstream suppliers do not track real CBAM emissions, tier 1 suppliers are forced to use EU default values for their raw materials, meaning quite certainly they will not reach the target of 80% of the CBAM product carbon footprint (PCF) being based on real values. This almost certainly leads to liability issues and therefore increased chances of fines in the range of 10 to 50 EUR per ton of greenhouse gas emissions.  

Benefits of reporting on CBAM – ASAP 

Regular and fully compliant CBAM emission reporting based on real factory data benefits both EU importers and international manufacturers. 

Firstly, understanding the emission calculation process allows for rapid quarterly measurements without needing the EU’s complex Excel template, thereby allowing for smooth and 100% regulatory compliance, meaning no fines and a healthy EU client relationship. 

Secondly, as transparency and reliability across the supply chain are enhanced by providing actual carbon footprints, decarbonization strategies, and production modifications can be evaluated and plans communicated to EU clients, thereby increasing ESG scores and general quality perception.  

Carbon emissions also often correlate with increased costs and price fluctuations, especially when linked to natural gas or electricity. Adopting renewable energy where possible can lead to long-term cost reductions as well as better PCF performance and lower CBAM-tax exposure. 

Finally, disclosing real supplier emissions ensures that the 2026 CBAM certificates price is almost certainly lower than if it was applied on EU default values, which are taken from the average carbon intensity of the 20% of most carbon-intensive EU manufacturing facilities. On top of that, default values are expected to further increase, to stimulate even more the use of real PCFs.  

Conclusion

In conclusion, international manufacturers must start reporting CBAM emissions whether they believe in its benefits or not. Suppliers should promptly gather the necessary data to avoid fines and to keep a trustworthy relationship with EU clients.  

CBAM emission reporting takes less time, if handled under the guidance of experts, compared to when using the overcomplex EU Excel communication template.  

Therefore, you are welcome to contact us and book a 30-min discovery call and explore our easy-to-use CBAM software.  

A supplier’s Q3/2024 report is part of a Free trial.