Is Your Supply Chain CBAM-Ready?

By 2026, importing emission-intensive products into the EU (such as steel) will require you to purchase CBAM certificates for every tonne of embedded emissions. The price will be linked to the weekly EU ETS rate.

Yes, that's a lot of acronyms. Let's unpack:

The EU ETS: The First Carbon Market

The EU Emissions Trading System (EU ETS) was the world's first carbon market (launched in 2005) and remains one of the largest globally. Its principle is simple: businesses pay for the greenhouse gases they emit. By setting an annual emissions cap aligned with the EU's climate targets, the system ensures overall emissions decrease over time. By 2023, EU ETS had helped slash emissions from European power and industry plants by almost  half since 2005.

The Carbon Leakage Problem

Making polluters pay sounds fair enough. But what happens when producers simply relocate to countries without carbon pricing? This 'carbon leakage' defeats the purpose. It merely shifts emissions to regions with less stringent climate policies, at the cost of the environment and compliant businesses that face unfair competition.

CBAM: Levelling the Playing Field

The Carbon Border Adjustment Mechanism (CBAM), adopted in 2023, closes this loophole. Importers of carbon-intensive goods – including cement, electricity, fertilisers, metals, aluminium, and hydrogen – must match the carbon costs that EU manufacturers face. This means buying CBAM certificates equivalent to their imports' embedded emissions.

Application Scope

What’s currently in scope is just the start. The EU Commission plans to extend CBAM to all industrial goods by 2034, with plastics and chemicals likely joining in 2027. A detailed roadmap is expected by the end of 2025.

Implementation Timeline

Since October 2023, importers have been required to report emissions data. From 1 January 2026, they’ll also need to buy CBAM certificates to cover those emissions, bringing the cost of imports in line with what EU producers already pay under the ETS.

The New Carbon Price

The process follows four steps:

• Determine embedded emissions in your imports (both direct and indirect)
• Calculate carbon costs using current EU ETS prices
• Buy CBAM certificates (one per tonne of CO₂)
• File your annual CBAM declaration by 31 May

→ Total CBAM cost = PCF of imported product × EU ETS price

Why Generic Emission Factors Won't Cut It Anymore

Notice the formula requires actual product emissions, not estimates.

Since August 2024, default emission factors can only account for a maximum of 20% of any product's total emissions calculation. This means importers must obtain actual emissions data from suppliers for at least 80% of their calculations.

Generic emission factors fail CBAM because they don't capture the reality of specific production methods, energy sources, or regional differences. Using them has financial risks: overestimate and you overpay; underestimate and you face penalties.

The key takeaway: Under CBAM, your suppliers' emissions data quality directly impacts your compliance costs.

Facilitating PCFs Exchange with PACT

CBAM in a nutshell: Suppliers must provide verified emissions data, and importers must collect it efficiently from potentially thousands of sources. For suppliers, this means new reporting obligations; for importers, it means their compliance costs depend entirely on their suppliers' data quality.

CBAM creates a need for accurate, comparable, and consistent reporting at the product level. The Partnership for Carbon Transparency (PACT) enables this through:

1. A unified calculation methodology for Product Carbon Footprints;
2. Open technical infrastructure for verified data exchange.

This framework gives suppliers confidence their data meets requirements while giving importers the standardised inputs CBAM demands.

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How We Cracked the Code on PCF Exchange

While PACT creates a standardised language for PCF exchange, getting thousands of suppliers and buyers to speak it fluently presents its own challenges.

Picture this: your supplier sends a PCF, but their product code ABC123 means nothing in your system. This product identification challenge was one of the main blockers to PCFs exchange at scale in 2024.

We’ve partnered with PACT and Unilever to find a practical solution, leveraging the one document buyers and sellers already share: invoices.

If you’ve missed the live event, catch the full recording below to see the outcomes of our collaboration.

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