Why is CBAM relevant?
For companies worldwide, CBAM means a significant change in the cost structures for CO₂-intensive products. At the same time, however, it also opens up opportunities to gain a competitive advantage by switching to more sustainable production methods and adapting global supply chains. In this post, we look at the impact of CBAM on international supply chains, the challenges that await companies, and the strategies they can use to adapt to this new reality.
How CBAM is affecting global supply chains
CBAM is more than just a tax on CO₂-intensive imports — it is a tool that fundamentally changes the way companies design and manage their supply chains. Products imported into the EU must now pay a CO₂ price based on emissions generated during production. This applies in particular to industries such as steel, cement, aluminum and fertilizers, which traditionally have high CO₂ emissions.
Changed cost structure: The introduction of CBAM is leading to a significant change in the cost structure for companies that export CO₂-intensive products to the EU. The additional costs from CBAM can significantly reduce profit margins, particularly in industries that rely on raw materials or intermediate products produced in countries with less stringent climate protection requirements.
The need for emissions monitoring: Companies must now ensure that they can accurately monitor and quantify CO₂ emissions along their entire supply chain. This requires accurate recording and analysis of emissions to minimize additional costs from CBAM. Modern technologies can help to record and manage these emissions in detail so that companies can adjust their supply chains and reduce CO₂ intensity.
The challenges for companies
The introduction of CBAM presents companies with a number of challenges that go far beyond simply complying with new regulations. These challenges affect both operational and strategic levels of companies.
Compliance and reporting: One of the biggest challenges for companies is meeting the new CBAM reporting requirements. Companies must provide detailed reports on the CO₂ emissions of their products and ensure that these reports comply with strict EU requirements. This requires not only accurate recording of emissions along the entire supply chain, but also the integration of this data into comprehensive sustainability reports. Meeting these requirements often requires significant investments in new data management systems and IT infrastructure.
Adapting supply chains: CBAM is forcing companies to potentially fundamentally rethink and adapt their supply chains. This could mean that companies must decarbonize their production processes, seek alternative suppliers with lower emissions, or even realign their geographical sourcing to avoid CO₂-intensive steps. These adjustments are not only costly, but also require close cooperation with suppliers and partners across the entire value chain.
Ensuring competitiveness: In view of the additional costs that CBAM entails, companies are faced with the challenge of ensuring their competitiveness on global markets. However, companies that successfully adapt their supply chains and production processes can gain a competitive advantage in the long term by positioning themselves as sustainable and future-oriented. This could also mean that they gain access to new markets and customers who value sustainable products.
CBAM implementation timeline
October 1, 2023 — Start of the transition period
- What's happening?: CBAM is entering its transition phase. From this date, importers of CBAM goods such as steel, aluminum, cement, fertilizers and electricity must report the CO₂ emissions contained in their imported products.
- What does this mean for companies?: In this phase, there is still no obligation to pay CO₂ certificates. However, companies must collect the required data and submit the first notification by January 31, 2024. This is an opportunity for companies to test their systems and processes for the final introduction of CBAM.
2024 — Strengthened reporting requirements
- What's happening?: Companies must continue to submit quarterly reports on embedded emissions in their imports. These reports must include detailed information on the volume of imported goods, direct and indirect emissions, and any CO₂ prices paid in the country of production.
- What does this mean for companies?: Companies must ensure that their data management systems are able to produce these complex reports and submit them on time. Violations of these reporting requirements may result in penalties.
2025 — Mandatory registration
- What's happening?: By the end of 2025, all importers importing CBAM goods into the EU must be approved as registered CBAM declarants.
- What does this mean for companies?: Companies that have not been registered up to this point may no longer import affected goods into the EU from 2026. It is therefore crucial that companies start registration processes early in order to avoid disruptions in the supply chain.
January 1, 2026 — Full implementation
- What's happening?: CBAM is fully implemented. From this date, importers must obtain CBAM certificates that correspond to the emissions contained in their products. The price of these certificates will be linked to the average price in the EU emissions trading system (ETS).
- What does this mean for companies?: This is where CBAM takes full effect. Companies must not only closely monitor their emissions, but also integrate the financial impact of purchasing certificates into their cost structure. Companies that have not prepared themselves sufficiently could face significant additional costs or even import bans.
Recommendation for companies
Companies should now check their supply chains for CBAM-relevant goods and ensure that they collect all necessary data to report emissions. A graphical timeline could be useful here to clearly present the various phases and the associated requirements.
This information could serve as a basis for a graphical timeline that visually summarizes key steps and deadlines. Such a presentation helps companies to keep a clear eye on the requirements and to take the necessary measures in good time.
Strategic adjustments and solutions
To meet the challenges of CBAM, companies must make strategic adjustments and use modern technologies to achieve their emissions targets and ensure competitiveness.
Using technology for optimization: Companies can use specialized tools to measure and manage the CO₂ intensity of their products along the entire supply chain. Such technologies provide detailed insights into emissions data and enable targeted measures to reduce these emissions. This is critical to minimizing CBAM costs while meeting reporting requirements.
Optimization of production processes: Another key to successful adaptation to CBAM is the optimization of production processes. With precise predictive models, companies can manage their production volumes in such a way that unnecessary emissions are avoided. This not only leads to a reduction in the CO₂ footprint, but also to an increase in resource efficiency. These proactive measures help to reduce the additional costs associated with CBAM and ensure competitiveness.
Long-term effects of CBAM
CBAM will change international trade in the long term and have profound effects on global supply chains. The additional burden on CO₂-intensive imports could lead to a shift in global supply chains, forcing companies to realign their procurement strategies and potentially invest in lower-emission production sites.
Change in the global trade pattern: CBAM could result in CO₂-intensive production increasingly being relocated to regions with stricter environmental regulations, which could significantly change the global trade pattern. Companies that manage to reduce their emissions and make their supply chains more efficient could benefit from a stronger market position in the long term.
Sustainability strategies as a competitive advantage: Companies that see CBAM as an opportunity to optimize their sustainability strategies can use these changes to position themselves as pioneers in the area of sustainability. This not only strengthens the trust of investors and customers, but also offers long-term competitive advantages on global markets.
By using modern technologies and adapting their supply chains, companies can minimize the additional costs associated with CBAM while achieving their sustainability goals. This enables them to ensure their competitiveness on global markets and at the same time make a positive contribution to climate protection.
Conclusion: The need to adapt
CBAM presents companies with new challenges, but also forces them to rethink and adapt their supply chains and production processes. Companies that make these adjustments at an early stage can not only minimize additional costs, but also position themselves as pioneers in the global sustainability movement. The combination of strategic adjustments and the use of modern technologies will be the key to successfully mastering CBAM's challenges.
Companies should now focus on collecting their emissions data, optimizing their supply chains, and rethinking their production processes to meet CBAM requirements.