As the European Union continues to advance the implementation of its innovative Carbon Border Adjustment Mechanism (CBAM), a clear reality emerges: in a recent article the Financial Times reported that only a small fraction of European companies has met the initial reporting deadlines for their carbon-intensive imports, as many companies are still unaware of their obligations.
The CBAM represents a groundbreaking global initiative, aiming to impose a tax on carbon-intensive imports. Its primary goal is to reduce the influx of cheap yet highly polluting products from countries with lenient environmental standards. In Germany, a key player in the European heavy industry scene, less than 10 percent of the expected 20,000 companies complied with the first early reporting deadline, prompting the German Emissions Trading Authority (DEHSt) to launch an information campaign. Similar patterns were observed in other EU nations.
Despite the threat of fines— up to €50 and more per tonne of carbon emissions for non-compliant companies—many businesses remain unaware or ill-equipped to navigate the intricate regulatory landscape. The administrative burden imposed by the CBAM is a significant concern within the industry.
Companies fear that the additional bureaucracy will exacerbate existing challenges, further eroding their competitiveness, with a potential cost increase for industries heavily dependent on imports from countries like Russia, India, or China. The CBAM will initially apply to imports of certain goods and precursors at the most significant risk of carbon leakage: cement, iron and steel, aluminum, fertilizers, electricity and hydrogen. Input costs are expected to rise, putting pressure on profit margins and operational efficiency.
The European Commission will remain committed to the implementation of CBAM, a crucial tool in achieving Net-Zero objectives. With nearly 13,000 reports submitted by the end of February, mainly focused on imports from China, the Commission will probably refine and simplify the system based on early feedback from stakeholders.
Looking ahead, European companies must actively adapt to the evolving regulatory landscape. Planning for CBAM is no longer optional but a vital prerequisite for survival.
At WieldMore, we are committed to assisting companies in identifying, measuring, and understanding how to mitigate these risks, including those related to CO2 emissions. Neglecting to anticipate and address these risks could lead to significant financial penalties and competitive disadvantages. As the EU takes decisive steps toward combating climate change, businesses must align their strategies with regulatory imperatives to thrive in a carbon-constrained world.
