An easy 5-step guide to running CBAM calculations, staying compliant, and avoiding costly fines, all while enhancing sustainability efforts globally.
The Carbon Border Adjustment Mechanism (CBAM) is a critical instrument introduced by the European Union to combat climate change.
By ensuring that imported goods into the EU reflect their carbon emissions, the regulation aims at leveling the playing field for EU producers who are subject to strict emissions regulations in order to prevent carbon leakage and promote greener production methods globally.
As CBAM reporting obligations started in 2023, and further regulations will come into force in 2026, many businesses must learn how to efficiently run CBAM calculations to stay compliant and avoid expensive fines.
Let’s find out how to run CBAM calculations easily!
How to Run CBAM Calculations
Running CBAM calculations requires a systematic approach to determine the embedded carbon emissions of imported goods, as well as their related costs.
Here it is a 5-step approach to CBAM calculations.
Step 1: Identify the CBAM Goods You Import
The first step in running CBAM calculations is identifying the goods subject to the CBAM regulation.
The CBAM applies to carbon-intensive products like cement, iron, steel, aluminum, fertilizers, hydrogen and electricity. Businesses need to check if the goods they import fall under these categories.
Accurate classification is essential for determining which goods require emission reporting and CBAM compliance.
Step 2: Define the System Boundary
After identifying the goods, it’s necessary to draw a system boundary around the production process in order to determine what aspects of production are included in your CBAM calculation.
It is necessary to consider all processes that generate carbon emissions related to the production and transportation of imported goods.
By defining this boundary, companies can ensure a clear and precise calculation, minimizing non-compliance risk.
Step 3: Gather Emission Data
Once the system boundary is set, companies need to gather the relevant data for CBAM calculation which involves collecting annual consumption values, production data, and emissions factors for the specific goods being imported.
Accurate data collection is vital to reporting the embedded emissions, as each product's carbon footprint must be calculated based on real-world data.
Nonetheless, from July 2024, companies are required to use actual emissions data rather than default values provided by the European Commission, increasing the importance of precise data gathering.
Step 4: Calculate Embedded Emissions
To calculate the emissions for CBAM compliance, multiply the weight of the good (in tonnes) by the emission factor (emissions per tonne) which will result in the total emissions embedded in the imported goods.
In this context, ensuring that the emission factor is appropriate for the product type is critical for accurate calculations.
Step 5: Calculate the CBAM Certificate Costs
Once the total emissions are calculated, it is necessary to determine the cost of CBAM certificates.
These certificates are priced based on the weekly average auction price of EU Emissions Trading System (ETS) allowances, expressed in €/tonne of CO2 emitted.
Businesses need to monitor ETS prices regularly to forecast the cost of their CBAM obligations.
Step 6: Submit Reports
The final step in the CBAM process is the regular submission of emissions data reports to EU authorities.
Businesses must submit quarterly reports detailing the embedded emissions in the imported goods, and these reports are essential for maintaining compliance with the regulation.
Inaccurate or delayed reporting can result in financial penalties and reputational damage.
Therefore, businesses should establish efficient internal systems for data tracking, verification, and reporting. Timely submissions, combined with accurate data, ensure smooth compliance with CBAM and mitigate risks associated with regulatory oversight.
To help companies and professionals to better understand the CBAM and its functioning the European Union has developed video-courses in its Custom & Tax e-learning portal.
Enhance Your CBAM Calculations Through Synesgy
Synesgy is an innovative platform designed to streamline the process of CBAM compliance by offering comprehensive sustainability and ESG data management solutions.
As the CBAM regulations tighten, especially with the obligation to use actual emissions data by July 2024, Synesgy becomes a crucial tool for companies navigating these complexities, enabling businesses to enhance their CBAM calculations through several key features:
Supplier Data Integration
Synesgy facilitates access to emissions data from suppliers, ensuring that businesses can gather accurate and up-to-date carbon emissions information from various points in their supply chain.
This is particularly important for companies that work with international suppliers, where emissions standards and reporting practices may vary.
Automation and Accuracy
By automating the calculation process, Synesgy reduces the risk of human error and simplifies the reporting requirements for CBAM.
Its robust data analytics tools help businesses align with the latest EU carbon pricing regulations, thereby preventing potential non-compliance fines or purchasing excess CBAM certificates.
Real-Time Monitoring
Synesgy offers real-time monitoring of carbon emissions, providing businesses with insights into their carbon footprint across different regions and suppliers.
This continuous tracking enables companies to make strategic decisions that could reduce emissions and optimize their sustainability initiatives.
Conclusion
As the EU’s CBAM takes full effect, understanding how to run these calculations is crucial for businesses importing goods into the EU.
Accurate data collection, emissions calculations, and efficient reporting are fundamental.
By leveraging platforms like Synesgy, companies can enhance their CBAM compliance processes, ensuring they remain competitive while contributing to the global fight against climate change.
