Article by Anuradha Goel

Sustainability and controlling carbon footprint, has been on the minds of many supply chain leaders and is becoming integral to key business decisions. We believe new regulations, access to data, and the bandwidth to refocus on sustainability in the post pandemic world will soon start impacting supply chains worldwide. In preparation for these changes, we have been enhancing our solutions to consider carbon as a decision variable. 

In this article, we explore the recently introduced European Union’s Carbon Border Adjustment Mechanism (CBAM) regulation concerning carbon.

The European Union (EU) launched the Carbon Border Adjustment Mechanism on October 1, 2023. It is designed to level the playing field between EU producers and importers of carbon-intensive goods from countries with less ambitious climate policies. 

The transitional provisions will apply from 1 October 2023 to 31 December 2025. It is expected to be fully operational by 2026.¹

The highlights for the transition phase are as follows:²

1. Companies will be required to report their quarterly emissions and have the option to purchase CBAM certificates.
2. The regulations will apply to imports of cement, iron and steel, aluminum, fertilizers, and electricity for the first phase. 
3. Companies will need to report on the volume of their imports and embedded Greenhouse Gas (GHG) during their production but will not have to pay any financial adjustment at this stage.
4. The declaration of emissions can be made based on actual emissions, which need to be determined using a schema provided by the EU regulators.
5. The importers need to start collecting data for the 4^th quarter of 2023. However, the first report needs to be submitted by 31 January 2024.   

Once fully implemented in 2026, Importers whose goods fall under the CBAM regulations will be required to purchase CBAM certificates. The price of the certificates will be determined by the weekly average auction price of EU Emissions Trading System (EU ETS) allowances expressed in €/ton of CO2 emitted.³

The EU website provides a plethora of resources ranging from industry specific webinars, courses, guidance materials to help you understand and comply with the regulations.

The CBAM regulations are due to come into full force in 2026, but it is important to start planning now to ensure that you are ready.

Here is a simple 3- step plan to help you comply with the new regulations:

1. Product Identification: Identify which of your products are covered by the CABM regulations. This will help you to determine the scope of your compliance requirements.
2. Prepare for the reporting requirements: Conduct a gap assessment to identify areas where your company needs to improve its data collection and reporting processes. You may need to design a process to start collecting the missing information.
3. Think strategically: Develop a plan to reduce the carbon emissions for your products. This could involve investing in new technologies, using more sustainable materials, or improving your production processes. 

Step 3 is the most important step because it can help you save money on carbon certificates in the long run. River Logic’s digital planning twin can help you to build a sustainable business by answering questions such as:

1. What is the total impact on my carbon footprint and carbon credits by source if I change my product or market mix?
2. How can I utilize the existing infrastructure to achieve sustainability and financial goals?
3. What is the impact on my carbon footprint by shipping products through different transportation modes such as rail, truck, ship?
4. What is the impact on my carbon footprint if I source my materials from more sustainable suppliers?
5. How to optimize CO2e and pollutant use?
6. What would be the trade-off between emissions/production/costs?

1 The Carbon Border Adjustment Mechanism starts this weekend (europa.eu)
2 Carbon Border Adjustment Mechanism (europa.eu)
3 2023/05/10 CBAM factsheet.pdf (europa.eu)