The impact of CBAM on the supply chain

The European Carbon Border Adjustment Mechanism has been in force since October 2023 and is being introduced with a transition phase. This phase is exclusively about a reporting obligation, which is currently preoccupying many importers - especially with regard to October. It is important not to lose sight of the fact that the Carbon Border Adjustment Mechanism is actually introducing a second emissions trading system. In future, importers will have to buy CBAM certificates for their goods imported from third countries. The principle here is that one certificate must be purchased for every tonne of CO2 emissions embodied in the goods.

New factor for supply chain managers

For supply chain managers or strategic buyers, this means that they have to take another factor into account when making purchasing decisions. The emissions intensity of the goods becomes a key aspect when selecting suppliers. As these are direct costs for the company, the decision must take into account that they are not yet included in the prices quoted by the supplier. They only arise after the order process has been finalised and even after the goods have been imported.

Default values as cost drivers

For the regulatory phase of the mechanism, from 2026 it will (again) be possible to choose between default values and actual emissions data. Companies will then be able to use default values again as they wish. However, these will then be different default values than those provided by the European Commission for the last reporting quarters. These new default values will be subject to a proportional mark up. This means that their use probably will in any case lead to a higher emission load than the use of actual emission data. However, a higher emission load is also accompanied by a larger number of CBAM certificates that must be purchased by the importer. This therefore increases the costs for the company concerned.

Concentration of efforts

However, the option of using the default values gives companies the leeway to concentrate their data procurement efforts on key suppliers. If only small quantities are ordered from a few producers, the expected price difference between the default values and the actual emission values will probably be manageable and hardly justify increased expenditure. If, on the other hand, the majority is sourced from a few suppliers, efforts to obtain (good) emissions data should be intensified accordingly.

Consideration in the purchasing process

Whether a supplier will be prepared to provide actual, CBAM-compliant emissions data in the future is therefore a key factor in purchasing decisions. This must be taken into account when selecting suppliers. Otherwise you may be in for an expensive awakening later on if you have to switch to the default values. If the decision is made in favour of a supplier in a third country, it should therefore be ensured when drawing up the contract that the data will actually be made available. Including an obligation to provide the (emissions) data required under CBAM can be a good option here. This is already common practice for data required for other regulations.

Support

If you have difficulty obtaining actual emissions data, we will be happy to support you. We will also be happy to work with you to assess what CBAM and certificate costs mean for your purchasing decisions and the strategic direction of your supply chain. Please contact us directly (helge@kolum.earth)

Best regards Helge Wieggrefe