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CBAM Explained: What Global Shippers Need to Know

Date
February 28, 2025
Read Time
4
Min Read
Authors
Justine O Connell
In This Article
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If you've been keeping an eye on European trade regulations, you've likely encountered the term "CBAM" - short for Carbon Border Adjustment Mechanism. But what exactly is this mechanism, and why should businesses involved in international shipping care? Let's break it down.

What Is CBAM and Why Should You Care?

At its core, CBAM is the European Union's answer to a problem called "carbon leakage." Imagine this scenario: An EU company makes steel and pays carbon taxes for their emissions. Meanwhile, a competitor overseas makes steel without these carbon costs and exports to Europe at lower prices. CBAM levels this playing field by making importers pay for the carbon emissions embedded in their products.

Think of it as a carbon import tax that ensures everyone playing in the European market follows similar environmental rules.

For anyone shipping products to Europe, this isn't just another compliance checkbox—it represents a fundamental shift in how international trade values carbon emissions.

Which Businesses Need to Pay Attention?

The regulation impacts several key groups across the supply chain:

  • Importers bringing CBAM-covered goods into EU territory
  • EU manufacturers who face competition from foreign producers
  • Non-EU exporters shipping regulated products to Europe
  • Manufacturers both inside and outside the EU who produce the covered goods

If you're involved in importing any of these products into the EU, CBAM has your name on it:

  • Cement
  • Iron and steel
  • Aluminum
  • Fertilizers
  • Electricity
  • Hydrogen

Most importantly, CBAM targets the carbon produced during manufacturing—not the emissions from shipping or using the product. The regulation specifically looks at the direct emissions that are emitted from production facilities (known as Scope 1 emissions) and the emissions from the electricity used during the manufacturing process (Scope 2 emissions). This distinction is crucial for understanding exactly what carbon footprint needs to be reported and paid for.

CBAM's Timeline

The EU is not implementing CBAM overnight. Instead, they have created a phased approach:

2023-2025: The Transitional PhaseDuring these three years, businesses are required to report emissions. The objective of this phase is to act as a practice run for all stakeholders involved. No financial obligations apply yet, giving companies time to develop their reporting systems and gather necessary data.

From 2026: Full ImplementationImporters will be required to declare their emissions and purchase CBAM certificates which will need to be surrendered based off the emissions that are associated with their imports. This is when the financial impact of CBAM begins in earnest.

Real-World Impact on Global Shipping

For those in the international shipping business, CBAM introduces several practical challenges:

Carbon tracking now extends deep into your supply chain. You'll need to know not just where your products come from, but how they were made and what emissions were generated.

Documentation requirements will expand significantly. The days of simply declaring value and origin are over—carbon emissions data becomes part of standard import documentation.

Financial planning must account for these new carbon costs. Depending on where your products originate, this could significantly impact pricing strategies.

Preparing Your Business for CBAM

Rather than waiting until 2026, forward-thinking businesses are already taking steps:

1. Conduct a CBAM Exposure Assessment: Review your product portfolio against CBAM-covered goods. Which of your imports will be affected? What percentage of your business could face new costs?

2. Map Your Supply Chain's Carbon Footprint: Start requesting emissions data from suppliers now. The sooner you establish these information channels, the better positioned you'll be.

3. Consider Strategic Adjustments: Some businesses are already exploring sourcing from regions with cleaner manufacturing processes or investing in suppliers willing to reduce their carbon intensity.

4. Stay Informed: The details of CBAM continue to evolve. Establishing connections with EU compliance experts can help you navigate changes as they come.

The Bigger Picture

CBAM isn't happening in isolation. It's part of Europe's broader European Green Deal aiming for climate neutrality by 2050. Similar mechanisms are under consideration in other regions, potentially creating a cascading effect in global trade.

For businesses that rely on international shipping, CBAM represents both challenge and opportunity. Those who adapt quickly may find competitive advantages, while those who delay could face disruption.

The bottom line? Carbon emissions are becoming a real currency in global trade, and CBAM is just the beginning of this transformation.

	
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