Navigating the EU’s CBAM: A New Era for Global Supply Chains and Business Strategy

The European Union’s Carbon Border Adjustment Mechanism (CBAM) is more than just a climate policy—it’s a transformative force reshaping global trade, supply chain dynamics, and corporate sustainability strategies. As CBAM moves from its transitional phase (2023–2025) into full implementation in 2026, businesses across the globe must prepare for its wide-reaching implications.

What Is CBAM?

CBAM is part of the EU’s “Fit for 55” package, designed to reduce greenhouse gas emissions by 55% by 2030. It places a carbon price on imports of high-emission goods—such as cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen—aligning them with the EU’s internal carbon pricing under the Emissions Trading System (EU ETS)1.

The goal is to prevent “carbon leakage,” where companies relocate production to countries with looser climate regulations, and to ensure fair competition between EU and non-EU producers.

Impact Across the Supply Chain

1. Upstream Suppliers
   • Non-EU suppliers are now under pressure to provide accurate emissions data for their products. EU importers rely on this data to calculate CBAM certificate costs, which are pegged to EU ETS prices. Inaccurate or missing data can lead to penalties or loss of market access
   • Key challenges:
     • Lack of familiarity with CBAM requirements
     • Need for emissions tracking systems
     • Risk of being replaced by lower-emission competitors
2. Importers and Manufacturers
   • EU-based importers must register with national authorities, submit quarterly emissions reports, and—starting in 2026—purchase CBAM certificates. These costs will directly affect product pricing and competitiveness
   • Strategic responses:
     • Mapping supply chains to identify CBAM-covered goods
     • Amending supplier contracts to include emissions data obligations
     • Investing in low-carbon sourcing and technologies
3. Logistics and Data Management
   • CBAM introduces a new layer of complexity in logistics and compliance. Companies must track embedded emissions at the product and production-installation level, requiring robust data systems and cross-functional collaboration
   • Operational shifts:
     • Enhanced traceability and reporting infrastructure
     • Integration of sustainability into procurement and trade compliance
     • Use of digital tools for emissions tracking and reporting

Business Implications and Opportunities

1. Financial Exposure
   • From 2026, CBAM certificates will become a significant cost factor. Businesses failing to prepare may face penalties ranging from €10 to €50 per tonne of unreported emissions
2. Legal and Contractual Risks
   • Importers may impose stricter contractual terms on suppliers, including liability for inaccurate data. This could lead to renegotiations or termination of supplier relationships
3. Competitive Advantage
   • Companies that proactively decarbonize their supply chains can reduce CBAM costs and potentially command a price premium for low-emission goods. CBAM also incentivizes innovation and investment in sustainable technologies

Global Ripple Effects

CBAM is already influencing policy discussions worldwide. The UK plans to implement its own CBAM by 2027, and countries like Turkey and Australia are considering similar mechanisms. This signals a broader shift toward carbon pricing in global trade.

Next Steps for Businesses

1. Conduct a CBAM impact assessment
2. Engage suppliers and build emissions data capabilities
3. Update contracts and internal compliance processes
4. Explore low-carbon sourcing and technology investments

CBAM is not just a regulatory hurdle — it’s a strategic inflection point. Businesses that act now to understand, adapt, and innovate will not only ensure compliance but also position themselves as leaders in the low-carbon economy.

SGS is the market leader in EU ETS verification with more than 15 years' experience, verifying GHG emissions of installations across all sectors covered by CBAM.  With our global presence, we provide a range of CBAM solutions in your language with local experts.

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