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Understanding the Carbon Border Adjustment Mechanism
Key Points Businesses Need to Know:
What is CBAM?
CBAM, also known as the Carbon Border Tax, is a mechanism designed to prevent carbon leakage – the shifting of greenhouse gas emissions from the EU to other countries. It aims to create a level playing field for businesses, encouraging global industries to align with greener practices.
Who does CBAM affect?
While CBAM's initial focus is on industries like steel, aluminium, cement, and fertilizers, its impact is far-reaching. If your company imports or exports products falling within CBAM's scope, understanding the implications is vital to your business's future.
Emission reporting and compliance
Businesses importing goods into the EU will face new carbon reporting requirements starting January 2023. By October 2027, carbon import permits linked to the EU's domestic carbon price will be introduced. Compliance with emission reporting is a necessity to navigate the changing landscape.
Emission tracking and reduction
CBAM places a spotlight on emissions throughout the supply chain. Understanding your product's carbon footprint and emissions is critical. Consider undergoing a Life Cycle Assessment (LCA) to identify emissions hotspots and adopt sustainable practices.
Prepare for financial impact
The cost of carbon import permits will be influenced by the EU's domestic carbon price, projected to reach €75 or more. Assess your supply chain's emissions and prepare for potential financial implications to stay ahead of cost pressures.
Future CBAM phases
CBAM's phased approach means businesses should be prepared for further changes. While initial phases focus on direct emissions, the second phase, starting in 2026, might expand to cover more goods and indirect emissions. Stay informed to adjust your strategies accordingly.
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