How to Prepare for CBAM: Act Now to Stay Ahead of the Curve

Brace Yourself For Carbon Border Adjustment Mechanism Regulation

How to Prepare for CBAM: Act Now to Stay Ahead of the Curve

The Carbon Border Adjustment Mechanism (CBAM) is shifting how businesses approach sustainability in global trade. With major compliance deadlines looming, the time to act is now. Delaying preparation could result in steep penalties, disrupted supply chains, and lost market opportunities. Here’s everything you need to know to understand CBAM and take proactive steps toward compliance.

1. What Is CBAM?

CBAM is a cornerstone policy in the European Union’s climate strategy, aiming to prevent carbon leakage and promote global decarbonization. By imposing carbon costs on certain imports, CBAM ensures that imported goods bear the same carbon pricing as products manufactured within the EU under the Emissions Trading System (ETS). This creates a level playing field while incentivizing low-carbon production methods globally. Initially covering carbon-intensive goods such as steel, cement, aluminum, fertilizers, hydrogen, and electricity, CBAM will expand its scope in the coming years. It is an essential component of the EU’s "Fit for 55" initiative, which targets a 55% reduction in greenhouse gas emissions by 2030.

2. Who Falls Under CBAM Compliance?

CBAM applies to companies that import specified goods into the EU. Businesses impacted by CBAM fall into three primary categories.

First, importers of high-carbon goods such as steel, cement, aluminum, fertilizers, electricity, and hydrogen are directly subject to the regulation. These industries represent a significant portion of global greenhouse gas emissions and must now account for the embedded emissions in their products when imported into the EU.

Second, suppliers along the value chain may not directly import CBAM-regulated goods but are required to collaborate with importers to provide accurate emissions data. This ensures that the entire supply chain contributes to transparent reporting and compliance.

Third, multinational corporations with global supply chains need to assess which parts of their operations are affected by CBAM. Even if only a segment of their imports is subject to the regulation, they must implement robust systems for emissions tracking and reporting.

Additionally, the CBAM framework offers exemptions for products originating from countries with emissions trading systems equivalent to the EU ETS, such as Switzerland and Norway. This nuanced approach ensures fairness while encouraging broader adoption of carbon pricing mechanisms globally.

3. How Do You Comply with CBAM?

Compliance with CBAM involves detailed preparation across several interconnected processes. The first step is data collection, which requires identifying goods covered under CBAM and assessing their embedded emissions. Companies need to work closely with suppliers to gather verified data on direct and indirect emissions associated with production. If primary emissions data is unavailable, default values provided by the EU may be used, which we published for you at https://sustamizer.com/data-hub/cbam for easy navigation. Furthermore you can utilize our rich database for secondary PCF data on materials, transportation, packaging and more. Feel free to check out our offer at: https://docs.sustamizer.com/knowledge-hub/getting-started/commercials.

From October 2023, importers are required to submit quarterly reports on embedded emissions through the CBAM Transition Portal. These reports must include comprehensive emissions calculations for each product and clearly distinguish between verified data and default values. Verification is another critical step in CBAM compliance. Importers must engage third-party verifiers accredited by the EU to validate their emissions data. This process ensures accuracy and reduces the risk of penalties for misreporting. Thorough documentation of emissions data, communication with suppliers, and verification processes is essential for demonstrating compliance. By January 2026, all importers must register as CBAM declarants. This registration involves meeting stringent criteria for emissions reporting and establishing a track record of compliance. Once registered, importers will be required to purchase CBAM certificates starting in 2026. The number of certificates corresponds to the quantity of embedded emissions in the imported goods, creating a direct financial incentive to reduce emissions. Companies that take proactive measures to streamline their reporting processes and reduce their carbon footprint will benefit from lower costs and improved market competitiveness.

4. What Happens If You Do Not Comply with CBAM?

Non-compliance with CBAM can lead to serious financial and operational consequences. Importers failing to meet CBAM requirements face significant penalties, which include fines equivalent to the cost of CBAM certificates plus an additional administrative fee. With current EU ETS rates around €85 per ton of CO2 equivalent, the financial burden can quickly escalate into millions of euros for high-volume importers. Beyond fines, companies may experience severe supply chain disruptions. Non-compliant goods are likely to face delays at customs or outright bans, jeopardizing delivery commitments and customer relationships. The reputational impact of non-compliance is equally damaging. Companies that fail to meet environmental regulations risk losing the trust of stakeholders, including customers, investors, and partners. In a market increasingly driven by ESG considerations, this loss of credibility can have long-lasting effects on brand value. Finally, persistent non-compliance may expose businesses to legal risks. Regulatory bodies are expected to enforce CBAM rigorously, and companies operating in high-emission industries will be under heightened scrutiny. Addressing non-compliance through litigation or retrospective penalties is far costlier and riskier than proactive adherence to the regulation.

5. Why You Should Prepare Right Now

CBAM is already in its transitional phase, with reporting obligations having commenced in October 2023. By 2026, the financial implications of CBAM certificates will come into full effect, significantly increasing operational costs for importers who are unprepared. Acting early is essential to avoid rushed compliance efforts, which often lead to errors, higher costs, and missed opportunities. Proactive companies can use this time to optimize their supply chains, negotiate better terms with suppliers, and invest in low-carbon technologies. These measures not only reduce CBAM-related costs but also position businesses as leaders in sustainability, providing a competitive edge in an ESG-focused market. Additionally, early compliance efforts can yield long-term savings by mitigating future regulatory risks and enhancing operational efficiency. The longer companies delay, the narrower their window to prepare effectively, increasing the likelihood of penalties and operational disruptions.

Act Now: Your Path to CBAM Compliance

CBAM is not just a regulatory hurdle - it is a strategic opportunity to future-proof your business in a rapidly evolving market. The time to act is now. Waiting until the penalties, costs, and reputational risks become insurmountable is not an option. If you have questions or need expert guidance, book a meeting with sustamize today. Our team is here to help you navigate CBAM compliance and build a sustainable future for your business.