The Carbon Border Adjustment Mechanism (CBAM): what do you need to know?

Dr. Sebastian Klotz Manager, Sustainability and Digital Technology, PwC Switzerland 02 Jun 2022

Have you heard of the upcoming Carbon Border Adjustment Mechanism (CBAM)? The answer should be “Yes, of course!” if you import aluminium, chemicals, cement, electricity, fertilisers, iron and steel or plastic from outside the European Union (EU) into the EU.

If, however, your answer is “No, who or what is a CBAM?”, this blog will get you up to speed.

Impact as of 2023 – short-term actions

Let’s start with the most important and most urgent message: If you import any of the mentioned products into the EU, you’ll most likely be affected by the CBAM very soon. In less than a year from now, starting in January 2023, you’ll be obliged to collect and to report the quantities of certain imported goods, the direct and indirect emissions embedded in these imported goods, and the carbon price that may have already been paid to produce these goods in their country of origin. Importantly, you’ll be required to report this information for each type of good, for each supplier and for each quarter.

Impact as of 2025/2026 – long-term planning

The CBAM gets even more complicated once the transitional phase ends. Whether this is in 2025 or 2026 is still the subject of negotiation. What’s certain, however, is that after the transitional phase you’ll be obliged to financially offset the carbon emissions embedded in your imported goods. You’ll be required to purchase carbon certificates at a price equal to the carbon price set by the EU Emissions Trading System (ETS). Between 2020 and now, this price has increased by approximately 300%. Today’s ETS carbon price is at around 80EUR – by 2030, this price is forecasted to be at around 140EUR.

What's the context?

At this point, let’s take a step back and provide some context on the CBAM. Initially, the CBAM was announced as part of the European Commission’s ‘Fit for 55’ package. This initiative aims to reduce net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. The CBAM is designed to contribute to this objective by reducing carbon leakage. In this specific context, carbon leakage occurs when the EU’s efforts to reduce carbon emissions are offset by increasing emissions in non-EU countries. This may happen when businesses relocate their production to non-EU countries with less ambitious carbon policies and/or increase their imports of carbon-intensive products from those countries.

The final details of the CBAM are still under negotiation. However, the official publications of the European Parliament, the European Commission and the Council of the European Union already provide valuable insights into how the CBAM is likely to function.

How does it work?

If you import any of the previously mentioned products into the EU, you’ll be a ‘declarant’ and play a central role in the CBAM system. In a nutshell, declarants will have to follow these steps to be compliant as of January 2023:

1. Import products and collect CBAM data: for each type of product, the imported quantity, the embedded emissions and the carbon price paid in the country of origin are to be collected from your non-EU suppliers.

2. Submit a CBAM report on a quarterly basis.

As of 2025/2026, declarants have to consider these additional steps and the associated financial impact:

3. Purchase CBAM certificates: the price of these certificates will be equal to the carbon price set by the EU ETS and be published on a weekly basis.

4. Verify the embedded emissions: the collected and calculated data on embedded emissions is to be verified by an accredited verifier.

5. Submit the CBAM declaration and surrender the CBAM certificates: by 31 May of each year, the collected and verified data is to be submitted in a CBAM declaration. The CBAM certificates that correspond to the declared embedded emissions are to be surrendered for the preceding year.

What do I need to do right now?

For the transitional phase, starting in 2023, you’ll ‘only’ have to worry about collecting the data from your suppliers and submitting the CBAM return quarterly. Still, do you have full visibility on the quantity of these imported products and the carbon price that may have already been paid in the country of origin? Do you and your suppliers know what embedded direct and indirect emissions are, and how to calculate these in a CBAM-compliant manner?

Whether or not you have the answers to these questions, the CBAM will likely affect you in three ways:

  1. It will increase your risk of non-compliance if you aren’t familiar with the, admittedly rather complex, process.
  2. It will increase the time (and associated cost) required to collect and to process data from your suppliers.
  3. It will increase your costs through the additional carbon price to be paid – as of 2025/2026.

Additionally, as the CBAM declarant should be an EU established entity, you might need to think about appointing a representative in order to fulfil your CBAM obligations. Goods which are produced in Switzerland, Iceland, Liechtenstein and Norway are exempted from the CBAM – therefore, it’s worthwhile checking whether the country of origin is correctly documented when exporting the listed products to the EU from these countries.

How can we help?

The final details of the CBAM are still under negotiation and the proposals by the European Commission, the European Parliament and the Council of the European Union vary considerably with regard to the products and emissions covered under the CBAM.

Please reach out to us if you’d like to learn in more detail how the CBAM will function and how it will likely affect you under different scenarios. Our product and service portfolio ranges from impact analyses to technology-enabled approaches to automatically collect, process and report your suppliers’ CBAM-related data. Together, we’ll get you up to speed on the upcoming CBAM and ensure your smooth transition into efficient carbon emission reporting.


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Dr. Sebastian Klotz

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