How will CBAM impact your supply chain?

21 November 2023•Article

CBAM Transitional phase started in October 2023 and applies to all European importers and UK businesses exporting to the EU. More frequent emissions reporting cycles and tighter standards are now required

The transitional phase of the EU Carbon Border Adjustment Mechanism (CBAM) started on October 1, 2023 and will run until the end of 2025. CBAM is a climate measure addressing carbon leakage and applies to all European importers of goods currently in scope (Iron and steel, aluminium, electricity, hydrogen, fertilisers, cement) and UK businesses exporting to the EU.

This measure ensures that pricing for imported goods and domestic (EU) products align with the carbon costs imposed on EU production under the EU Emissions Trading System.

During the transitional period, businesses will be required to provide quarterly CBAM reports on embedded direct and indirect emissions for goods in scope. The first quarterly report deadline is 31st Jan 2024, covering Q4 of 2023. The first 2 reports of 2024 can be amended by companies with no penalties to allow for learning and improvement on the new reporting standards. In this first year, companies will be able to report on the relevant emissions in one of three ways:

Reporting according to the EU method
Reporting based on equivalent third-country national systems
Reporting based on reference values

From 1 January 2025, the EU method will be the only acceptable method of embedded emissions reporting. After the transitional period (from 2026), businesses will have to purchase CBAM certificates to offset emissions derived from their imports, with certificate pricing to be updated weekly. Businesses will therefore have to prepare for higher operating costs, new compliance and reporting obligations, and carbon accounting regulations.

Mirroring the EU CBAM, the UK is set to introduce the UK CBAM no sooner than 2026. In line with its European counterpart, the UK CBAM will likely target imported goods with high embodied emissions in sectors covered by the UK Emissions Trading Scheme (UK ETS), including cement, chemicals, iron and steel, paper and pulp, glass, refining, and fertilisers.

Great Britain to Northern Ireland specific guidance

There are currently streamlined customs procedures in place between Great Britain (GB) and Northern Ireland (NI) but CBAM will likely create some minor changes in the movement of goods between GB and NI.

Trade of in-scope goods between NI and Republic of Ireland (ROI) will not be subject to CBAM

NI is part of the EU single electricity market, thus subject to EU ETS. Hence, electricity trade between NI and ROI will be exempt from CBAM. However, electricity trade between GB and NI could be subject to CBAM.

Shipments from GB to NI using the 'green lane' are unlikely to be subject to CBAM

Woodland is committed to fostering environmental sustainability in the supply chain industry and offers a wide range of services including carbon monitoring of your global transport chains. Should you have any questions on CBAM or your supply chain, please contact us here.