The CBAM cost factor

With the Carbon Border Adjustment Mechanism, the European Union has introduced a second emissions trading system for imports. The resulting costs must be borne directly by the companies. As this is not a simple CO2 tax, the cost burden depends on various factors.

Dependence on the emissions burden

The cost burden that a company incurs under CBAM depends on the number of emissions embodied in the imports. The principle applies that one certificate must be purchased for one tonne of CO2 emissions. It should be pointed out once again that unlimited standard values may be purchased again from 2026. However, these will be subject to a proportional surcharge and will therefore probably be more expensive than the use of actual emission values. However, as the default values are reported on a country-specific basis in this phase, a lower cost burden under CBAM can also be achieved here with appropriate control of the purchasing decision. If actual emission values are even used, the cost burden can be reduced even further with the targeted selection of climate-friendly manufacturers.

Direct emissions count

For a cost-specific impact analysis, it is also crucial to bear in mind that, for the time being, only direct emissions are taken into account in the particularly affected sectors. These include iron and steel and aluminium. However, this exception also applies to hydrogen. This makes a huge difference, especially for aluminium imports. This is because indirect emissions account for around three quarters of the emissions burden here. The majority of the emissions burden in this industrial sector therefore does not initially lead to any additional cost burden. However, it is possible that indirect emissions will also be included in these sectors. The European Commission has reserved the right to do so.

Dependence on the price of the EU ETS

The price of CBAM certificates also depends on the price of European Emissions Trading Scheme certificates. The latter creates a shortage situation by capping the number of certificates issued within a specified period. Participants in European certificate trading can then trade EU ETS certificates with each other as they wish. This creates a price for the limited quantity of certificates. With CBAM, however, there is no such upper limit for the certificates, so this mechanism does not work. Instead, the average price of the EU ETS allowances is formed and set for the CBAM certificates.

Price development

It should be noted that the price of EU ETS certificates can fluctuate significantly in some cases and that these price fluctuations have a corresponding impact on CBAM certificates. A corresponding price collapse was recorded, for example, with the gas crisis and the resulting decline in production. Nevertheless, the EU has committed itself to the goal of climate neutrality. This is supported by the European Emissions Trading Scheme, in which fewer and fewer certificates are issued over the years. As a result, the price of EU ETS certificates and therefore also CBAM certificates is expected to continue to rise over the years.

Other factors

In addition to the emissions intensity, the link to the European Emissions Trading Scheme and its price development, other factors are also decisive for the cost analysis. Above all, this concerns the interaction with the cost-free allocation of EU ETS certificates and any CO2 price incurred abroad. However, this would go beyond the scope of this report.

Support in the cost-specific impact analysis

If you have any questions about the impact of CBAM on your purchasing decisions, what this means for your company balance sheet or how to carry out a precise analysis, please contact us directly (helge@kolum.earth). We will be happy to support you in setting the right course now.

Best regards Helge Wieggrefe