The EU Carbon Border Adjustment Mechanism (CBAM) is a policy issued by the European Union, part of a policy package “Fit for 55” to help the EU reduce greenhouse gas emissions by 55% by 2030 (compared to 1990), and further achieve climate neutrality by 2050.

CBAM aims to fairly price greenhouse gas emissions from the production of high-emission goods imported into the EU. The EU will implement CBAM gradually in three phases:

• Transition period: from October 10 to the end of 2023
• Official phase: from January 1 to the end of 2026
• Comprehensive phase: from January 1 onwards

During the transition period, importers will only have to declare emission data to the regulatory authority. However, from January 01 onwards, when goods have emissions exceeding the EU level, importers will have to purchase a CBAM Certificate to offset the amount.

2025 is the last year of the Transition Period, the European Commission will make adjustments to prepare for the Mainstream Phase from 2026.

Emission calculation method

The EU will only accept emissions calculations based on the EU methodology. The emissions calculation methodology for reporting to the EU is quite specific. It is not a facility emissions calculation methodology. Rather, it is similar to the life cycle emissions calculation methodology.

However, the calculation scope does not cover the entire process from raw material exploitation to end-of-life processing of the product. The scope only includes:

• Direct and indirect emissions during the production and processing of input materials (excluding mining and transportation)
• Direct and indirect emissions during the production of finished goods.

When CBAM was first implemented, to provide flexibility and simplicity for parties in reporting, the EU issued and applied “default values” when it was not possible to calculate actual emissions. However, from 1/1/2025 onwards, the default values ​​will no longer apply. Except for complex goods, the use of default values ​​or other estimates if they account for less than 20% of the total emissions in the goods.

Non-EU businesses can declare directly

The EU will allow non-EU manufacturers to declare directly on the CBAM Database System. This will help non-EU manufacturers to be more proactive in declaring. Specifically, for manufacturers selling to many EU partners, they only need to declare once per quarter, instead of having to declare multiple times to different partners.

Furthermore, direct declaration also helps non-EU manufacturers ensure the confidentiality of sensitive information and business secrets of enterprises. The registration portal will be open from 01/01/2025.

EU conducts review to add more goods to the list of regulated products

In 2025, the European Commission will review and assess the implementation of the Transition Period. One of the objectives of the review is to increase the breadth and depth of the list of goods covered by CBAM.

In terms of depth, with 06 product lines currently in the list, namely Cement, Iron and Steel, Fertilizer, Aluminum, Electricity and Hydrogen, the EU will add some downstream goods in the value chain of these industries.

In terms of breadth, the EU will consider adding a number of other industries with large emissions to the list. For example, Paper and paper products; Plastics and plastic products; Mirrors/Glass and mirror/glass products;….. Therefore, businesses exporting these products to the EU need to pay special attention to prepare for adaptation.

Proactively adapting to policy changes not only helps businesses minimize risks, but also opens up opportunities for new orders in demanding markets like the EU.