1 year of CBAM- Main takeaways and next steps

CBAM and global carbon taxation

Today, on 1st October 2024, we mark exactly one year since the Carbon Border Adjustment Mechanism (CBAM) began its transitional phase. Designed at the end of 2021 as part of the EU’s “Fit for 55” package, CBAM ensures that local industrial and electrical production faces the same greenhouse gas emissions calculation rules and taxation as imports. It was created with three key objectives: 

• Prevent carbon leakage, where companies shift carbon-intensive production to countries with weaker climate policies or where EU products are replaced by more carbon-intensive imports. 
• Level the playing field by ensuring imported goods incur the same carbon costs as EU-made products, thus avoiding competitive disadvantages for EU businesses and aligning with WTO regulations. 
• Promote cleaner production globally by encouraging non-EU countries to adopt carbon pricing and leverage sustainability as a competitive advantage. 

CBAM will be fully operational by 2026, following the transitional period (October 2023 – December 2025). By then, all affected global suppliers will be required to adhere to CBAM’s emissions calculation rules and regularly report their emissions to EU clients. As CBAM reaches full implementation, the EU will begin phasing out the free allowances under the EU Emission Trading System, and CBAM will enter its definitive taxation phase, establishing the world’s first and most comprehensive carbon pricing framework, marking a significant step toward meeting its climate targets. 

The transitional phase acts as a pilot for stakeholders to collect data on the embedded emissions of suppliers. Currently, importers only need to report direct greenhouse gas emissions from imports, without the need to purchase certificates. While both direct and indirect emissions must be collected from suppliers, it remains unclear if the final CBAM tax on all goods will apply to both. A review of the product scope is expected by 2030, potentially expanding to include glass, ceramics (as seen in the UK CBAM), and supplier emissions related to transport and heating from 2027, as the same sectors will fall under EU ETS 2.

Key Lessons from CBAM’s First Year 

As we move toward full CBAM implementation in 2026, the transitional phase has already revealed six key insights that will help companies prepare for the upcoming changes.

1. Strong Reporting Coverage, Despite Challenges: The EU received around 60,000 reports during the first two quarters (Q4 2023 & Q1 2024), showing good coverage overall. However, national agencies like Germany’s DEHSt and Sweden’s EPA reported fewer submissions than expected. Due to technical issues, the Q4/2023 deadline was extended by two months. Notably, 90% of CBAM imports are managed by just 10% of declarants. 
2. Cross-Departmental Impact: CBAM compliance goes beyond sustainability teams—it affects customs, finance, trade, and supply chain management. Success requires seamless coordination between these departments and the broader supply chain. 
3. Manual Burden on Both Ends: The process of transcribing physical customs, contact, and emission data is labor-intensive and will become more so with the switch to real emissions values. Many international suppliers find the EU’s Excel tool for emissions calculation overly complex, likely causing delays in reporting. 
4. Heavy Reliance on Default Values: In Q4/2023 and Q1/2024, 95% of CBAM declarations relied on default values, with only a few sectors (like cement) submitting real data. This high reliance will make the transition to real emissions data by October more challenging, increasing the complexity and pressure on companies. 
5. Countries Responding to CBAM: Although some countries like India and South Africa have raised concerns about CBAM at the WTO, many are strengthening their carbon pricing systems to retain revenues. Türkiye is moving quickly to align with CBAM, while others—India, China, Vietnam, Colombia, and Canada—are considering similar frameworks. The UK is closely aligning its CBAM strategy with the EU. 

What to expect in the coming months 

CBAM Enforcement is Strengthening

As of June, CBAM enforcement has ramped up, with the EU reconfirming that from Q3 2024, default values will no longer be accepted. At least 80% of a product’s embedded emissions must be based on real data, with only 20% allowed from default values. For industries like iron, steel, and aluminium, where most emissions occur upstream, it will be difficult to meet this threshold shortly, making multi-tier engagement mandatory. 

This shift underscores the need for automated CBAM compliance solutions. Automation is key to streamlining data collection, connecting suppliers and importers, reducing errors, and ensuring timely reporting. 

CBAM products set to become up to 60% more expensive already in 2026 

As 2026 approaches, companies are now facing the reality of CBAM’s final phase, which is set to reshape international trade. CBAM tax calculations will include sectoral and performance-based benchmarks, in line with the ones of the EU ETS. Importers will then pay the CBAM tax on the difference between the actual imported embedded emissions and the CN-code specific benchmark. This means that by 2026, CBAM-covered goods like steel can become 15% more expensive, while aluminium up to 60%. However, exact price increase forecasts are hard to make as the official CBAM benchmarks probably won’t be published until late 2025. More on this in our dedicated CBAM tax blog. 

For the current quarter (Q3 2024), the EU has stated that importers must make all “possible and reasonable” efforts to collect emissions data. Supplier engagement efforts will need to be tracked and disclosed: importers must send at least 2 emails to suppliers by quarter. National Competent Authorities (NCAs) in each EU country will then assess whether companies have allocated sufficient resources based on their size, import volumes, the proportion of CBAM goods they handle and their CBAM report improvements over time. 

Mandatory 3rd Verification 

Many importers wonder how they can ensure the accuracy and reliability of the data provided by their suppliers. Starting in 2026, when CBAM becomes financially significant, third-party verification of factory emissions will be mandatory. Reporting lower emissions now, only to face costly surprises later, would only damage business relationships—especially when there’s no tax liability at present. 

CBAM risk hedging as a way to mitigate Tax risk 

As CBAM enforcement intensifies, businesses can adopt various strategies to mitigate financial risks. One effective approach is hedging through European Union Allowances (EUAs), the certificates required in the EU Emission Trading System. Since CBAM certificates will be tied to EU ETS’s carbon prices, companies can purchase EUAs now, anticipating price increases, and sell them later, thereby minimizing future exposure to CBAM-related costs. Contact us to be redirected to specialised partners.