Carbon Border Adjustment Mechanism, ESG and Supply Chain

While CBAM reporting requirements start on 1 October 2023, what should you already think about now? What are the potential costs from CBAM for your business? We recommend that your internal Tax and ESG teams work closely on this, in order to assess the impacts of CBAM across your supply chain.

15 June 2023


Through CBAM, the EU aims to create a level playing field between EU-based producers and non-EU based producers, in terms of the CO2e intensity of production. This is in line with the EU’s overarching goal of decarbonizing the EU economy by 2050, a key aim of the EU’s Green Deal. 

In particular, the EU aims to ensure that European producers who have been able to reduce the carbon intensity of their production processes are able to remain price competitive vis-à-vis non-EU producers who have not yet reduced the carbon intensity of their production. This should also incentivize EU and non-EU producers alike to further invest in solutions to reduce and decarbonize the carbon footprint of their production processes. 

CBAM may eventually lead to a global carbon price. However, at present, different national carbon markets and carbon prices are emerging across various key global markets. 

The CBAM regulation officially entered in to force on 17 May 2023 and is binding and directly applicable across all EU Member States. CBAM obligations are now real for EU importers of products within scope. 

Additionally, a draft regulation on details of CBAM reporting requirements is open for feedback of businesses until July 11, 2023. The draft regulation can be found under this link.


Products covered by CBAM

The following carbon intensive products, imported into the EU and originating in a third country, are subject to CBAM:

  • Iron and steel, cement, fertilizers, aluminium, electricity, hydrogen, certain precursors (e.g., several acids and ammonia), and several downstream products (e.g., tubes, pipes, doors, reservoirs, cans, aluminium foil and cables, bolts, and screws). 

Raw materials imported into the EU before placement under customs procedures (e.g., inward processing) are subject to CBAM. Goods re-exported after placement under inward processing customs procedures are expected to be exempt from CBAM. 

Remember to consider peculiarities for inward and outward processing, as well as for returned goods. 


Who should report on CBAM?

The following organisations should submit CBAM reporting to the EU Commission during the transition period (1 October 2023 - 31 December 2025):

  • Customs declarant (importer) or, 
  • Its customs broker (only if acting as indirect representatives*).

*Indirect representation means that the customs representative is responsible for the actions performed by him on the name of the importer. Indirect representation is rare in practice, so most importers need to be ready to submit CBAM reporting by themselves.

Further assessment may be required, if there are several importers in different EU countries (e.g., relevant for multinationals) or if the importer is not established in the EU.


CBAM reporting requirements

Your first CBAM report should be submitted in January 2024 (for the period starting from 1 October 2023). This report should include the following information:

  • Quantity of CBAM products, specified for each installation producing the goods in the country of origin;
  • Commodity code;
  • Actual direct CO2e emissions from production; 
  • Actual indirect CO2e emissions from the production of electricity that is consumed during production; 
  • Carbon price in the country of origin (i.e., are CO2 taxes already paid in the country of origin).

If you cannot determine your actual CO2e emissions, default CO2e emissions values should be used.

Most of the information required for your CBAM reporting is normally difficult to obtain or calculate. It is therefore important to get started on this work as soon as soon as possible. Your Tax team will need to work with ESG colleagues, and with suppliers, in order to get ready for CBAM. 

From 2026 onwards, data reported in your CBAM declaration will also need to be verified by an accredited external verifier. 


Registration requirements in 2025-2027

  • From 31 December 2024, importers/their indirect representatives need to register as CBAM declarants.
  • From 1 January 2026, CBAM covered products can only be imported into the EU by authorized CBAM declarants. 
  • From 31 May 2027, every authorized CBAM declarant will need to submit a CBAM declaration and will need to purchase CBAM certificates. 


Price of CBAM certificates

The price of CBAM certificates will be calculated as the average of the closing prices of EU ETS allowances on the auction platform during each calendar week (In June 2023, this was DKK 630 per ton of CO2).

We believe that carbon prices will only increase, going forward. This means that it will be in the interest of importing companies to reduce the overall carbon intensity of their production, in order to pay less in CBAM fees. This should also be a good opportunity for your company to re-evaluate your supply chain/purchasing of CBAM-covered goods, from a price and an ESG perspective (i.e., total price and total CO2e footprint of goods/overall ESG profile of goods).



For the transition period, penalties are expected for incomplete or inaccurate reporting. The detail of these penalties is yet to be outlined by the EU Commission. 

From 1 January 2026, penalties will be up to Euro 500/ton of CO2


What should you do now?

  • Study your supply chain, from a CBAM and ESG perspective: What do you/your suppliers import into the EU? What is the CO2e and overall ESG profile of these imports? 
  • What are the ESG and carbon implications of your supply chain to your business?
  • Determine whether the goods that your company imports into the EU/goods within your wider supply chain fall within the scope of CBAM. 
  • Study CBAM reporting requirements and identify where you/your supplier will be able to get all the data that is required, in order to be able to report.
  • Consider who will do your CBAM reporting within your company? Will this be your Tax or your ESG team? Or should this be a task for your Tax and ESG teams to do together? 
  • Will you or your supplier do CBAM reporting on goods imported for you by your supplier?
  • Include CBAM costs in your future budgeting and pricing considerations (from 2026 onwards). 
  • Re-evaluate your supply chain/purchasing of CBAM-covered goods, from a price and an ESG perspective (i.e., total price and total CO2e footprint of goods/overall ESG profile of goods).
  • Ask your Tax and ESG teams to make a rough calculation of likely CBAM costs – based on available CO2e emissions data and current EU Emissions Trading System (ETS) carbon prices. 



It is important to develop a full picture of your CBAM reporting data as soon as possible, as most of this data will need to be obtained from your suppliers/other external parties, etc. 

As well as considering CBAM, this will also be a good opportunity for your business to consider the ESG and carbon impacts of your supply chain.     

Reach out to us if you would like to discuss this further – we have experience of bringing Tax and ESG teams together to solve complex ESG-themed tax and regulatory questions.


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