The Carbon Border Adjustment Mechanism's Transitional Phase Is Underway

A seismic policy shift is underway in Europe that will have global supply chain ripples: the EU’s bold climate policy known as the Carbon Border Adjustment Mechanism (CBAM) entered a critical new phase on October 1st, launching its transition period before a broader carbon border tax starts in 2026. CBAM requires importers into Europe to calculate and declare greenhouse gas emissions associated with goods including cement, iron and steel, aluminum, fertilizers, electricity and hydrogen. 

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Ushering in a New Era of Climate Policy

The sweeping climate measure tackles the mounting competitiveness and carbon leakage risks European producers face as the EU drives down domestic emissions. Carbon leakage, the offshoring of emissions when companies shift production abroad to avoid climate regulations, is a critical issue that CBAM seeks to prevent by applying carbon pricing to imports.

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The Cost of Carbon – Planning for CBAM’s Carbon Fees

The very real impact of CBAM will be the increasing carbon costs it imposes on imports over time. Beginning in 2026, direct importers will need to purchase CBAM certificates corresponding to the embedded emissions of their imported goods. The price per ton of CO2 will directly mirror the weekly average auction price of EU Emissions Trading System allowances.

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Beginning in 2026, importers will face a carbon border tax that grows steadily more expensive each year. By 2030 goods like steel coils could cost 10% more due to the regulation. Those inflated expenses from CBAM border fees will also flow downstream, raising production costs for goods utilizing imported materials and components, like the steel used in home appliances and the aluminum used to build cars. Companies reliant on carbon-intensive imports require forward planning to budget for and mitigate surging CBAM expenses.

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Achieving Supply Chain Transparency and Carbon Accounting

Navigating this new terrain is no small feat. Companies must achieve transparency many have never had before into emissions throughout their value chain, from materials to manufacturing. Many companies are alarmingly unprepared for the new CBAM requirements; a Deloitte survey found 60% of impacted importers are unfamiliar with details around compliance and another survey by the British Chambers of Commerce revealed that 84% of British exporting manufacturers remain unaware of the requirements. The level of supply chain traceability and carbon accounting CBAM necessitates calls for specialized tools up to the challenge.

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Leveraging AI to Unlock Carbon Insights at Scale

That is where Muir AI comes in. Our AI-powered platform demystifies carbon footprinting at scale using the power of data science. Leveraging vast datasets and global trade mapping, we deliver unmatched visibility into hotspots across your organization’s entire upstream value chain. Our product-level assessments highlight your highest impact suppliers, materials and facilities – enabling targeted interventions.

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We built Carbon Origin specifically to accelerate accurate product carbon footprint reporting and streamline compliance processes. Customers gain an authoritative view of current emissions along with granular reduction roadmaps grounded in their unique profile. 

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What Next? Four Steps to Prepare for CBAM Compliance

Supply chain sustainability leaders should follow these four key steps in order to accurately comply with emissions reporting while also forging long-term resilience:

   1. Determine applicability of CBAM

   2. Find a partner to help with regulatory reporting

   3. Streamline reporting processes

   4. Prepare for cost and tax impacts

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Stay tuned for our next article on how to prepare for the cost implications of CBAM. Contact us to future proof your business as carbon constraints reshape trade worldwide.

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