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The Carbon Border Adjustment Mechanism (CBAM) is a crucial part of the European Union's strategy to fight climate change and limit carbon leakage. Introduced under the European Green Deal, CBAM aims to level the playing field between EU producers and foreign competitors by imposing a carbon price on imports from countries with less stringent environmental regulations. This mechanism addresses the risk of carbon leakage, where businesses might relocate production to countries with laxer emission rules, thus undermining global climate efforts.
The timeline for CBAM implementation is structured to allow businesses to adapt gradually. The mechanism entered its transitional phase on October 1, 2023, during which companies must report the embedded emissions of their imported goods without incurring financial liabilities. This period will last until December 31, 2025, after which CBAM will fully come into effect. From January 1, 2026, importers will be required to purchase CBAM certificates corresponding to the total embedded emissions of their imports. A significant shift will occur in July 2024, when companies must switch from using default emissions values to primary data, requiring more precise and accurate reporting.
Non-compliance with CBAM regulations can result in severe sanctions. Companies failing to meet reporting obligations or accurately declare emissions could face fines of up to €50 per tonne of CO2e not reported or inaccurately reported, along with additional scrutiny and potential trade restrictions. Therefore, understanding and adhering to CBAM requirements is crucial for businesses engaged in international trade.
In this article, we will explore the five most common mistakes in CBAM reporting and provide insights on how to avoid them. By understanding these difficulties and implementing best practices, businesses can ensure compliance, avoid sanctions, and contribute to global efforts to mitigate climate change.
1. Misunderstanding Reporting Scope and Obligations
A frequent mistake in CBAM reporting is misinterpreting the scope and specific obligations. Many companies are unaware of the detailed requirements, such as which goods are covered, the exact data needed, and the responsibility for ensuring accurate submissions. This lack of understanding can lead to incomplete or incorrect reports, resulting in non-compliance and potential penalties.
How to Avoid It:
Conduct Comprehensive Training: Ensure all departments involved in CBAM reporting, including procurement, legal, tax, and sustainability understand their roles and responsibilities. Training sessions should cover the entire scope of CBAM obligations, and the specific data required for compliance.
Consult CBAM Guidelines and Experts: Regularly review official CBAM guidelines provided by the EU, such as the official CBAM website, and seek advice from compliance experts. This helps clarify uncertainties and ensures your company is up-to-date with the latest requirements and best practices.
2. Errors in Emissions Calculation
Calculating the correct embedded emissions for imported goods is a complex task. Mistakes often occur from using default values or incorrect emissions factors, especially when suppliers do not provide precise data. Moreover, starting from July 2024, companies must switch from using default emissions values to primary data, adding to the complexity of the reporting process.
How to Avoid It:
Use Accurate Methodologies: Follow the EU’s prescribed methodologies for calculating emissions. Ensure that all emissions data sources are reliable and up-to-date. Cross-check calculations to avoid discrepancies. On the Customs & Tax EU Learning Portal there are a lot of training videos on CBAM. You can find them here.
Engage with Suppliers: Develop strong relationships with your suppliers and communicate the specific emissions data requirements for CBAM compliance. Provide them with guidance and tools to help them report accurate emissions data.
Verify Emissions Data: Regularly audit the emissions data provided by suppliers to ensure accuracy. Use third-party verification services if necessary to validate the data and avoid potential compliance issues. For example, SupplyOn offers a “Plausibility” check for the emissions data supplier send in their tool.
3. Late Submission of Reports
Many businesses fail to submit their CBAM reports on time, often due to poor planning or lack of awareness of reporting deadlines. In the transitional period CBAM reports must be submitted quarterly, no later than one month after the end of each quarter. After the transitional period the report must be submitted yearly.
How to Avoid It:
Set Internal Deadlines: Establish internal timelines for report preparation well in advance of the official deadlines. For example, if the CBAM report is due by January 31st, set an internal deadline for January 15th to ensure everything is in order.
Maintain an Updated Calendar: Keep an updated calendar of all CBAM reporting deadlines and conduct periodic reviews to ensure readiness. Assign specific team members to monitor and manage these deadlines.
Understand Late Submission Procedures: If a technical error prevents you from submitting on time, you can request a delayed submission via the CBAM Transitional Registry. After the request, you will have 30 days to submit your report. Additionally, the first two CBAM reports (due by January 31 and April 30) can be corrected until July 31, 2024. Here is an overview with the submission deadlines and possible modifications:
A guide on how to request delayed submission can be found here.
4. Neglecting Indirect Emissions
Focusing solely on direct emissions and overlooking indirect emissions from electricity or other inputs is a common oversight. This can result in incomplete reporting and non-compliance with CBAM regulations.
How to Avoid It:
Comprehensive Data Tracking: Ensure your data collection encompasses both direct and indirect emissions, including emissions from electricity consumed during the production process and other indirect sources.
Apply Correct Emission Factors: Use the appropriate emission factors for indirect emissions as outlined in CBAM regulations. Verify these factors regularly to ensure they are up-to-date and accurate.
Train Your Suppliers: Educate your suppliers on the importance of providing accurate data on both direct and indirect emissions. Provide them with guidelines and tools to help them comply with CBAM requirements.
Engage Cross-Functional Teams: Involve various departments such as procurement, sustainability, and logistics in the emissions tracking process. This collaborative approach ensures that all relevant emissions data is captured and reported accurately.
5. Lack of Integration and Automation
Relying on manual processes for data collection and integration instead of using automated systems increases workload, error rates, and inefficiencies in data management. Manual methods are not only time-consuming but also prone to inaccuracies, leading to inefficient reporting processes and potential compliance failures.
How to Avoid It:
Adopt Automated Systems: Implement automated systems for data capture and integration to reduce errors and improve efficiency. Automation streamlines the reporting process, minimizes manual work, and ensures accurate data capture.
Integrate Data Management: Use integrated data management solutions that can seamlessly collect, store, and report CBAM-relevant data. This helps in maintaining consistent and accurate records.
Regular System Audits: Conduct regular audits of your automated systems to ensure they are functioning correctly and capturing all necessary data accurately.
By incorporating automated systems and ensuring seamless data integration, businesses can significantly reduce the risk of errors, improve efficiency, and facilitate easier compliance with CBAM requirements.
SupplyOn's CBAM Reporting Manager is one such automated system that helps companies deal with complex CBAM requirements and addresses all five of the most common mistakes. Get in touch with us to get a first look at our software.
The Carbon Border Adjustment Mechanism (CBAM) is a key element of the European Union's climate strategy. Its goal is to stop carbon leakage and make sure EU industries stay competitive. CBAM, which is based on Regulation (EU) 2023/956, levies a carbon price on imported goods that corresponds to the price applicable in the EU under the Emissions Trading Scheme (ETS) to ensure a “level playing field” for goods produced inside and outside the EU. To comply with regulations and assess financial impact, companies need accurate carbon reporting. It's essential for businesses to understand the difference between using default values and primary data for this reporting.
Urgency to Collect Accurate Primary Data
As the sole use of default values is only permitted until June 30, 2024, it is crucial for companies to start collecting accurate primary data now to ensure compliance for the July-September reporting period. The transition to primary data reporting is not only a regulatory requirement but also a strategic necessity to maintain competitive advantage and avoid potential financial and operational setbacks.
Consequences of Failing to Collect Accurate Data:
Regulatory Penalties: Non-compliance with CBAM reporting requirements can result in substantial fines and penalties. Reporting declarants may face penalties ranging between €10 and €50 per ton of unreported incorrect emissions. Higher penalties can be applied when more than two incomplete or incorrect reports have been submitted or the duration of the failure to report exceeds 6 months.
Increased Costs: Inaccurate reporting due to reliance on default values can lead to overestimation of emissions. An overestimation in the full implementation period will require the purchase of more CBAM certificates than necessary, significantly increasing compliance costs.
Reputational Damage: Failing to comply with CBAM regulations can harm a company’s reputation, affecting stakeholder trust and market positioning.
Operational Disruptions: Last-minute efforts to gather primary data can cause significant operational disruptions, diverting resources from core business activities.
Understanding CBAM Reporting
CBAM aims to make sure EU-produced goods and imports are on an even playing field by equalizing carbon costs. This prevents companies from moving their production to countries with less stringent emissions regulations. Initially, CBAM targets the emission-intensive sectors iron and steel, cement, fertilizers, aluminum, hydrogen and electricity. The rollout started with a transitional period from October 2023 to the end of 2025 and then shifts to a definitive phase in January 2026.
Accurate carbon reporting is crucial for both compliance and efficiency under CBAM. It impacts the purchasing of CBAM certificates, which in turn affects a company's financial liability and competitive position. Precise reporting helps avoid penalties and strengthens a company's sustainability credentials.
Differences Between Default Values and Primary Data in CBAM Reporting
Challenges with EU's Communication Template
Many companies initially attempt to use the EU's communication template to collect primary data for CBAM reporting. While this template is intended to standardize data collection, it often leads to significant challenges and failures:
Complex to Understand and Difficult to Use: The EU's template can be complex and not user-friendly, making it difficult for users to navigate and input data correctly.
Lack of Indication of Data Plausibility: There is no plausibility check for the supplier-provided data and whether the emissions values are too high or too low, which can lead to inaccurate reporting.
Unstructured Data Collection: The template does not facilitate structured data collection from all relevant installation sites, leading to fragmented and inconsistent data.
Limited Bulk Operations: The template is not designed to send to multiple suppliers at once, nor does it easily allow for tracking of responses or sending reminders for corrections, which complicates the data collection process.
Time-Consuming Manual Data Entry: The template requires extensive manual data entry, which can be time-consuming and prone to errors, increasing the risk of inaccurate data submission.
SupplyOn's CBAM Reporting Manager
SupplyOn's CBAM Reporting Manager is designed to overcome these challenges and simplify the standardized data collection process to support your journey to CBAM compliance, ensuring companies can efficiently transition from default values to primary data reporting with minimal effort.
Key Features that You need for October Reporting:
- Automated Data Collection: CBAM Reporting Manager automates the collection of emissions data across various stages of the supply chain including operators and installation sites, reducing manual efforts and ensuring data accuracy.
- Collection of Mandatory Data Possibility: The software offers the option to collect and report only mandatory CBAM data to reduce the effort on both sides, importers and their suppliers.
- Bulk Data Collection: With just few clicks you can now collect data from all relevant operators and their installation sites at once.
- Plausibility Indicator: The software has plausibility database integrated to immediately check the collected supplier CBAM data where they are too high or too low.
- One click CBAM Report: The reporting panel makes it incredibly easy to check and create quarterly “XML” CBAM report just with a single click which are ready to submit to EU Transitional Registry.
What you should consider for July-September Reporting Period:
Transitioning from default values to primary data for CBAM reporting presents significant challenges for companies, but it is necessary for accurate compliance and financial efficiency in long term. SupplyOn’s CBAM Reporting Manager provides a robust solution, simplifying the data collection process and supporting your reporting journey with minimal effort.
Creating effective strategies for collecting better data from suppliers for CBAM (Carbon Border Adjustment Mechanism) reporting is crucial for companies to ensure compliance and facilitate smooth operations under the new EU regulation. This article outlines practical steps and methodologies that can be integrated into your data collection processes for enhanced efficiency and accuracy.
Understanding the Challenges
The first step in improving data collection from suppliers is to recognize the challenges both you and your suppliers might face. These can range from a lack of understanding of CBAM requirements to technical challenges in data collection and reporting. Identifying these challenges early on helps in tailoring your approach to supplier engagement and data collection.
Educating Your Suppliers
Education is key to overcoming initial hurdles. A well-informed supplier is more likely to provide accurate and timely data. Consider organizing training sessions, webinars, or creating informational content that breaks down CBAM requirements and explains the importance of accurate data reporting. Highlight how this not only ensures compliance but can also benefit the supplier through insights into their own carbon footprint and areas for improvement.
Streamlining Communication
Establish a clear, open line of communication with your suppliers specifically for CBAM-related inquiries. Designate points of contact within your organization who can address questions and provide support. This helps in minimizing confusion and delays in data submission.
Utilizing Digital Platforms as Standardized Approach
Digital platforms like SupplyOn’s CBAM software play a crucial role in simplifying the data collection process. SupplyOn’s CBAM software offers features such as:
Automated Data Collection: Automate the collection of relevant data directly from suppliers, reducing manual entry errors and saving time.
Centralized Data Management: Store and manage all supplier data in a single, secure location, making it easier to review, analyze, and report.
Data Plausibility Check: Implement checks to validate the accuracy of the data received and highlight discrepancies or missing information for follow-up.
One click report: Once the data is collected, directly download the ready to go report in XML format to submit quarterly.
Continuous Improvement and Feedback
Finally, establish a process for continuous improvement. Use feedback from suppliers and insights from data analysis to refine your data collection processes over time. Regularly update your strategies to address new challenges and leverage advancements in technology and best practices.
Conclusion
Improving data collection from suppliers for CBAM reporting is a multifaceted process that requires education, communication, and the right technological tools. By implementing standardized practices, leveraging digital platforms like SupplyOn CBAM software, and fostering a collaborative environment, companies can enhance the accuracy and efficiency of their CBAM data collection efforts, ensuring compliance and fostering sustainability within their supply chains.
As the Carbon Border Adjustment Mechanism (CBAM) reshapes the regulatory landscape, many businesses are still finding their ways to submit their quarterly report. However, CBAM must be strategically integrated in their procurement practices to ensure compliance and foster resilience. This article explores how CBAM can be part of such procurement strategies and have long term influence in how companies source, contract, manage supplier relationship and optimize.
Amidst the Carbon Border Adjustment Mechanism (CBAM), procurement professionals can act as below to address challenges and opportunities:
Evaluating Suppliers' Carbon Footprint: Procurement professionals must assess suppliers' carbon footprint to gauge environmental impact and risks related to CBAM compliance. This involves collecting emissions data and prioritizing low-carbon suppliers.
Negotiating Carbon Clauses in Contracts: Incorporating carbon clauses is essential for CBAM compliance. Procurement teams must collaborate with legal and sustainability experts to draft enforceable provisions, reducing legal and financial risks.
Establishing Clear Communication Channels for CBAM Compliance: Effective communication is crucial for transparency and collaboration. Procurement professionals should establish clear protocols and maintain open dialogue with suppliers.
Supplier Relationship Management for Collaboration and Accountability: Strategic partnerships with environmentally responsible suppliers are key. Effective supplier relationship management fosters collaboration and drives sustainable growth.
Diversifying Sourcing: Procurement teams must assess their current supplier base and identify dependencies on regions or suppliers that may face higher carbon costs under CBAM. By diversifying their sourcing strategies, businesses can reduce their exposure to potential disruptions and risks associated with carbon pricing. This may include exploring alternative suppliers from regions with lower carbon footprints or investing in partnerships with suppliers committed to sustainability practices.
Investing in Alternative Suppliers: Beyond diversification, businesses should actively invest in building relationships with alternative suppliers who can offer more sustainable sourcing options. This investment may involve conducting thorough assessments of potential suppliers, negotiating contracts that align with CBAM requirements, and fostering long-term partnerships built on shared sustainability goals. By cultivating a robust network of alternative suppliers, businesses can enhance their flexibility and resilience in the face of regulatory changes and market uncertainties.
Leveraging CBAM software: Digitalization plays a crucial role in data collection from suppliers, calculate CBAM related emissions, run plausibility check and report preparation in XML format in just few clicks. Such streamlined approach can quickly ease the burden and the data can be easily integrated to overall procurement process. Check SupplyOn’s CBAM Reporting Software here.
Supply chain optimization in the context of CBAM involves not only adapting to new regulatory requirements but also proactively building resilience through diversification, investment in alternative sourcing, and leveraging software technologies. By embracing these strategies, businesses can navigate the complexities of CBAM compliance more effectively and position themselves for sustainable growth in the evolving regulatory landscape.Incorporating sustainability into supply chain practices goes beyond mere compliance with CBAM regulations. It involves a holistic approach aimed at combining CBAM, Supply Chain Law, Human Rights Due Diligence, CSRD Reporting, Product Carbon Footprint measurement all part of one strategy to succeed in long run.
Conclusion:
In the CBAM era, procurement tackling such ESG related topics in strategic manner is essential for businesses to ensure compliance, drive sustainability and be efficient with your resources across the supply chain. To learn more how SupplyOn can empower your sustainable procurement organization, contact our ESG experts here.
