The European Union looks to reduce global carbon emissions, and its ground-breaking Carbon Border Adjustment Mechanism, CBAM, will enter into force as of October2023, businesses importing energy-intensive products into EU, as well as their producers, will experience an increased complexity. New challenges that increase the demand for a more digital process for supply chain traceability.
CBAM, more commonly known as the “carbon border tax", is an innovative regulatory framework designed to impose levies on imports based on their associated carbon emissions.
What this means is that companies must consider the carbon footprints of all components and materials used in the production of imported finished goods, such as cars and industrial machinery, as well as their suppliers and suppliers’ suppliers all around the world.
Gradually implemented policy framework for high-risk sectors
CBAM will be phased in gradually, starting with certain goods that have a high risk of carbon leakage such as iron and steel, cement, fertilizer, aluminium, and electricity generation. The reporting system will apply as of October 2023. Initially importers will be obligated to document and report their CO2 footprints of imported goods. By around 2026, the tax system will become more intricate, and importers will have to calculate and pay for every metric ton of CO2 connected to imports, including complex products like cars and industrial machinery.
To gain an understanding of the full carbon footprint of these items, companies will need to consider all components, the materials used to create them, the mines they were extracted from, and the fuel used in transportation. As such, importers will be the ones responsible for documenting and paying for the carbon footprints of their suppliers and their suppliers’ suppliers all over the globe.
Supply chain carbon emissions calculation is crucial
It will be imperative for both EU importers and their foreign producers to manage the CBAM requirements accordingly. Neglecting to comply with the CBAM policy could lead to administrative burdens, higher costs, and supply chain disruptions. To ensure success, companies must have access to C02 data and a solution that enables them to calculate the carbon emissions according to the EU’s approved methodology. This means that each company along the value chain needs to contribute to a secure exchange of data, and a correct tax calculation.
Companies with a firm grasp on the CBAM system will benefit from a competitive advantage. Most of the information that importers and foreign producers need to report for CBAM, can be accessible through their enterprise resource planning (ERP)systems and those of their suppliers and partners. We firmly believe that information technology is the answer to implementing the CBAM in a way that will help the tax reach its full potential in satisfying the ambitions of the European Green Deal and driving worldwide action on climate change.
A digital solution, an enabler for your CBAM reporting
Digital traceability solution can provide great assistance to both EU importers and foreign producers when it comes to managing and reporting the CBAM requirements. By helping to automate the process of calculating carbon emissions in accordance with the EU’s approved methodology, the task will be easy, secure, and efficient to handle. A digital solution can provide a possibility for parties along the supply chain to securely exchange data, accurately calculate the tax, and manage the carbon footprints along the way. By integrating the traceability solution with the ERP system, and those of suppliers and partners, you can secure access to all applicable data for accurately reporting for CBAM.
Ultimately, a digital solutions can be an important key to implement the CBAM framework effectively, and achieve the goals of the European Green Deal in driving global action to combat climate change. It will also help your company to stay compliant with changing regulations, monitor carbon emissions, and increase customer value.
How do you prepare for CBAM? At ChainTraced we meet at lot of companies along the metallic value chain that want to leverage from a digital solution in their gathering of product data and calculation of their CO2 footprint. Are you interested to learn how ChainTraced can help your organisation? We are happy to connect and start with a simple introduction!