CBAM (Carbon Border Adjustment Mechanism)

Regulatory measures prepared under the leadership of the European Union to support environmental sustainability by reducing carbon emissions continue to be implemented. The Carbon Border Adjustment Mechanism, aimed at supporting the fight against climate change, is also an innovative tool developed by the European Union as a regulatory measure. So, how successful will this innovative tool be in achieving the European Union’s goal of reducing carbon emissions?

What is the Carbon Border Adjustment Mechanism (CBAM)?

The Carbon Border Adjustment Mechanism (CBAM), as it is known in English, was put into force by the European Union on October 1, 2023, in order to reduce the risk of carbon leakage and support emission reduction targets. Today, CBAM, accepted as one of the most fundamental tools for reducing the carbon footprint, has been complemented by revisions to the EU Emissions Trading System (ETS).

The aim of CBAM is to balance carbon costs between produced goods and imported goods. In simpler terms, with CBAM, the carbon costs faced by producers within the EU are also applied to producers outside the EU. In this way, it is intended to prevent carbon leakage and ensure that the European Union remains competitive in the face of increasing green transition costs.

Carbon-intensive production activities are subject to strict regulations within the European Union. Carbon leakage is the relocation of these production activities to countries where regulations are more lenient. With the CBAM it has implemented, the European Union aims to prevent this situation and encourage the fight against climate change worldwide.

The period between 2023 and 2025 has been designated as a transition period for CBAM. That is, all importers bringing products or services from abroad are only obligated to report their carbon emission data until the end of 2025. However, as of 2026, all importers in designated sectors must obtain CBAM certificates. To begin with, the cement, iron, steel, aluminum, fertilizer, electricity, and hydrogen sectors have been subjected to CBAM.

Carbon Border Adjustment Mechanism Reporting Date

According to the announcement made by the European Commission on December 13, 2022, importers must declare each year the goods imported into the EU during the previous year and the amount of embedded carbon these goods contain. The declaration in question will be carried out according to a schedule to be determined under ETS rules. According to the news on the website of the Ministry of Foreign Affairs, Directorate for European Union Affairs, this date has been set as May 31.

After importers declare the amount of carbon in the imported goods on the specified date, they will need to buy certificates corresponding to this amount. The price of the certificates will also be determined based on the weekly average price in the ETS system. Of course, this system is not yet fully in force and is currently only in the reporting phase. Therefore, the current operation is being reviewed by the European Commission. Following the completion of all reviews, it is planned to evaluate other sectors and products and include them within the scope of the mechanism. The EU aims to reach the goal of becoming carbon-neutral by 2050, with the contribution of CBAM.

Why is the Carbon Border Adjustment Mechanism Important?

The Carbon Border Adjustment Mechanism holds critical importance both environmentally and economically. Minimizing the risk of carbon leakage is one of the main advantages of CBAM. In addition, we can list why CBAM is important as follows:

• CBAM is a global-scale tool that can be utilized in the fight against the climate crisis. By encouraging sustainable production practices, it can lead the EU to its goal of becoming carbon-neutral.

• Thanks to CBAM, producers operating within the European Union can continue to compete with the rest of the world. Since a carbon cost balance is established between both EU and non-EU producers with this system, unfair competition is also prevented.

• The regular reporting of carbon content in all products brings along a transparent and accountable approach. Thus, both consumers and investors can make more accurate decisions on which products they should turn to.

• With CBAM, a step closer can be taken towards the dream of a greener, more sustainable planet that can be left to future generations with peace of mind.

How is the Number of CBAM Certificates to be Purchased Determined?

To determine how many CBAM Certificates an importer needs to buy, first, the calculation of greenhouse gas emissions for each 1 metric ton of CO2 equivalent embedded in the product must be done. At this point, there are specific quantities calculated within the framework of Article 7 of the CBAM Regulation and verified within the framework of Article 8 for the imported products in question. While the greenhouse gas emission embedded in the product is expressed as greenhouse gas emissions in metric tons of carbon dioxide equivalent per megawatt-hour for electricity, it is expressed as metric tons of carbon dioxide equivalent per metric ton of product for other products.

In short, importers are obliged to purchase 1 CBAM Certificate for each 1 metric ton of CO2 equivalent greenhouse gas emissions created by the products they import. When CBAM is fully implemented in 2026, the price of the CBAM Certificate to be paid will be based on the current carbon price in the EU Emissions Trading System (ETS).

What Information May Be Requested in Reporting During the Transition Period?

During this period, the EU importer may request the sharing of the following information:

• Information about the product, such as the quantity of the exported product, product type based on CN code, and country of origin,

• Information regarding the production facility, such as company name, address of the company, and location,

• Information about the production process,

• Emission data,

• Carbon prices applicable in the country where production takes place.

Carbon Border Adjustment Mechanism for a More Livable World

Important steps are being taken by governments and parliaments worldwide to minimize, and if possible, zero out the carbon footprint. The Carbon Border Adjustment Mechanism is one of these steps. It is of vital importance for corporate businesses to also develop strategies aimed at this goal.

If you also want to minimize the carbon footprint of your corporate firm, you should first analyze the amount of resulting carbon emissions well. As QuickCarbon, we offer solutions for the accurate calculation and reporting of carbon footprints, and contribute to corporate businesses developing carbon-neutral strategies with the software we have developed. You can contact us immediately to get detailed information about our software that calculates and reports according to the ISO 14064-1:2018 standard and GHG Protocol.