CBAM Preparation: Supplier Perspective

The EU Carbon Border Adjustment Mechanism (CBAM) is a regulation that requires declaration of carbon content and payment of carbon price for imports of certain products into the European Union. CBAM is an important component of the EU's European Green Deal and "Fit for 55" package.

For exporters in Turkey and other non-EU countries, CBAM means new reporting requirements and potential cost impacts. In this article, we cover CBAM scope, timeline, calculation methodology, and preparation steps.

Products Covered by CBAM

CBAM covers certain carbon-intensive sectors. These sectors are under EU ETS and carry carbon leakage risk.

Covered product categories

Steel and iron:

Pig iron and steel
Iron and steel products (pipes, profiles, plates)
Ferroalloys

Aluminum:

Primary aluminum
Aluminum products

Cement:

Clinker
Cement

Fertilizers:

Ammonia
Nitric acid
Urea
Mixed fertilizers

Electricity:

Direct electricity imports

Hydrogen:

Hydrogen and hydrogen-based products

CN Codes (Customs Tariff Numbers)

Each product category is defined by specific CN (Combined Nomenclature) codes. Exporters should determine under which codes their products are classified.

Example CN codes:

7206-7229: Iron and steel products
7601-7609: Aluminum products
2523: Cement
2814, 3102, 3105: Fertilizers

Transition Period Timeline

CBAM is being implemented in phases.

Transition period (October 1, 2023 - December 31, 2025)

Only reporting is mandatory during this period. No financial obligation.

Reporting requirements:

Submission of quarterly CBAM report
Quantity of imported products
Embedded emissions of products
Carbon price paid in country of origin (if any)

Reporting dates:

Q4 2023 report: By January 31, 2024
Subsequent reports: Within one month after each quarter end

Full implementation period (after January 1, 2026)

Financial obligations begin. CBAM certificate purchase linked to EU ETS carbon price is required.

Phased transition: CBAM obligation increases as free allocations decrease in EU ETS. Starts at 2.5% in 2026, reaches 100% in 2034.

Embedded Emission Calculation Methods

Embedded emissions are greenhouse gas emissions occurring during product manufacturing.

Direct emissions

Emissions directly occurring in the production process.

Sources:

Fuel combustion (natural gas, coal, fuel oil)
Process emissions (chemical reactions)
Process gas use

Calculation: Direct emissions = Fuel consumption × Emission factor + Process emissions

Indirect emissions

Emissions from production of purchased electricity and heat.

Electricity emissions:

Electricity consumption (MWh) × Grid emission factor (tCO2/MWh)

Heat/steam emissions:

Heat consumption (GJ) × Heat production emission factor

Note: Inclusion of indirect emissions in CBAM varies by product category. Only direct emissions are reported for some products.

Default values vs actual data

CBAM offers two different data approaches.

Default values:

Reference values published by the EU Commission
Can be used when actual data cannot be provided
More flexible use during transition period
Limitations will apply in full implementation period

Actual (specific) data:

Facility's own measurements and calculations
More accurate and potentially lower values
May require verification
Should be preferred in the long term

Flexibility during transition period: Default values or alternative methodologies can be used in initial reporting periods. However, actual data expectation will increase over time.

Precursor (Predecessor Product) Emissions

A precursor is an intermediate product used in the production of a CBAM-covered product.

Precursor concept

Example: In steel production, there is a chain: iron ore → pig iron → steel. Pig iron is a precursor for steel.

CBAM approach: Precursor emissions must be included in the embedded emissions of the final product.

Precursor emission calculation

Formula: Total embedded emissions = Direct emissions + Indirect emissions + Σ(Precursor emissions × Usage quantity)

Data sources:

Specific data from precursor supplier
Default precursor emission values

Reporting Requirements and Forms

CBAM report content

General information:

Importer identification information
Reporting period
Country of origin

Product information:

CN code and product description
Import quantity (tons)
Embedded emissions (tCO2e/ton product and total tCO2e)

Production facility information:

Facility name and location
Production process description
Calculation methodology used

Carbon price:

Carbon tax or ETS cost paid in country of origin (if any)

EU Commission transitional registry

The EU Commission has established a transitional registry for CBAM reporting. Reports are submitted through this system.

Verification Expectations

During transition period

Third-party verification is not mandatory during the transition period. However, data reliability is important and audit risk exists.

Full implementation period

After 2026, verification of embedded emission declarations by accredited verifiers can be expected.

Verification requirements:

Compliance with ISO 14064-3 or similar standards
Accredited verification body
Annual verification cycle

Supply Chain Communication

CBAM requires data sharing throughout the supply chain.

Importer-exporter communication

EU importers will request embedded emission data from their suppliers.

Requested information:

Product-specific emission value (tCO2e/ton)
Calculation methodology explanation
Production facility information
Energy sources used

The EU Commission is developing standard data sharing templates. Exporters should comply with these formats.

Confidentiality considerations

Emission data may contain production process details. Confidentiality agreements and aggregated data sharing should be considered.

Cost Impacts

Direct costs (after 2026)

CBAM certificate cost: CBAM certificate price is linked to EU ETS carbon price. As of 2024, EU ETS price is in the 60-90 EUR/tCO2 range.

Example calculation:

Product embedded emissions: 2 tCO2/ton product
EU ETS price: 80 EUR/tCO2
Unit CBAM cost: 2 × 80 = 160 EUR/ton product

Deduction: Carbon tax or ETS cost paid in country of origin can be deducted.

Indirect costs

Data collection and reporting:

Internal resource time
Consulting services
Software and systems

Verification:

Third-party verification fee

Process improvement:

Emission reduction investments
Energy efficiency projects

Preparation Timeline Recommendations

Immediate steps (now)

Identify products covered by CBAM
Assess current emission data status
Monitor requests from EU customers
Inform internal stakeholders

Short-term (3-6 months)

Conduct product-based emission calculations
Establish data collection procedures
Determine customer communication format
Compare with default values

Medium-term (6-12 months)

Document calculation methodology
Improve data quality
Collect data from precursor suppliers
Evaluate emission reduction opportunities

Long-term (12+ months)

Transition to specific data use
Prepare for verification
Reflect carbon price impact in pricing
Plan low-carbon production investments

Turkey Perspective

Turkey-EU trade relationship

Turkey has a Customs Union relationship with the EU. There is significant export volume in products covered by CBAM.

Main export items:

Steel and iron products
Aluminum products
Cement

Carbon pricing in Turkey

There is no ETS or carbon tax in implementation in Turkey yet. This means CBAM deduction cannot be made and full cost burden applies.

Potential developments:

Turkey ETS preparations are ongoing
Carbon pricing aligned with EU could enable CBAM deduction

Competitive impact

CBAM may create cost disadvantage for Turkish exporters. On the other hand, companies capable of low-carbon production may gain competitive advantage.

Conclusion

CBAM is bringing new reporting and cost requirements for non-EU producers. The transition period provides an opportunity for preparation.

Critical steps for suppliers:

Conducting scope assessment to determine which products are affected
Developing embedded emission calculation capacity
Establishing data sharing format with EU customers
Planning transition to specific data use in the long term

Early preparation strengthens customer relationships and enables management of cost impacts after 2026. Low-carbon production capacity can translate into competitive advantage in the CBAM environment.

CBAM Preparation: Supplier Perspective