Industry News

August 17, 2023

What is The Carbon Border Adjustment Mechanism(CBAM) and how should we deal with it?

Source: Photo from European Commission

What is The Carbon Border Adjustment Mechanism (CBAM)?

Climate change is a problem that requires solutions on a global scale. With the EU increasing its climate ambition, there is a risk of ‘carbon leakage’ as long as less strict climate policies are present in many non-EU countries. Carbon leakage can occur when companies in the EU move carbon-intensive production to countries with less stringent climate policies or when more carbon-intensive imports replace EU products.

In order to prevent the risk of carbon leakage, the European Commission introduced the Carbon Border Adjustment Mechanism (CBAM), which entered into force on 16 May 2023.

How does CBAM work?

The Carbon Border Adjustment Mechanism (CBAM) aims to impose a fair price on the carbon emitted during the production of carbon-intensive goods imported into the EU while also incentivizing cleaner industrial production in non-EU countries.

CBAM will be gradually introduced in coordination with the phase-out of free allowances under the EU Emissions Trading System (ETS) to support the decarbonization of EU industry. CBAM ensures that carbon emissions generated in the production of certain goods imported into the EU have been accounted for, maintaining equivalence in carbon pricing between imports and domestic production, and safeguarding the EU’s climate goals.

Why should you pay attention to CBAM?

If you plan to export products to European Union countries, it is crucial to ensure your products meet the necessary requirements and regulations. Non-compliance can result in additional costs, harming your margins and reducing competitiveness in the EU market.

Thoroughly researching and understanding these regulations will help avoid unnecessary costs or delays and improve your chances of success in the EU market.

How should I start complying with CBAM?

To begin implementing CBAM, start by understanding its key concepts and assessing your organization’s current state. Here are five actionable steps:

(1) Measure Your Existing Carbon Footprints

You can measure your carbon footprint using online calculators or professional services. Tools like TT GREEN provide global coverage of over 400 regions and 500 emission activities, adhering to international frameworks to assist corporations in calculating carbon footprints.

(2) Set Reduction Targets (Short-Term and Long-Term)

Once you know your carbon footprint, set specific, measurable, achievable, relevant, and time-bound (SMART) reduction targets. For example, reduce emissions by 20% within five years. Tools like TT GREEN can track your emissions in real-time and monitor progress toward your goals.

(3) Implement a Carbon Reduction Plan

Develop a comprehensive plan to achieve reduction targets, including measures such as:

Energy efficiency improvements.
Switching to renewable energy sources (solar, hydro, wind).
Encouraging sustainable transportation.
Reducing waste and promoting recycling.
Advocating sustainable practices among employees and stakeholders.

(4) Offset Unavoidable Carbon Emissions by Carbon Credits

Offset emissions by investing in carbon credits, which fund climate projects that reduce emissions and promote sustainable development. You can also apply for carbon-neutral labels (e.g., PAS2050, PAS2060) from third-party verifiers.

Learn how to choose the right carbon credit project for your company.

(5) Apply for a Carbon Neutral Label

To demonstrate carbon neutrality, apply for a carbon-neutral label. This label shows that you have offset product emissions and reduced environmental impact. From 1 January 2026, importers must declare goods imported into the EU and surrender CBAM certificates corresponding to their embedded greenhouse gas emissions.

The clock is ticking—start your journey today!