Experts call for support for companies navigating Europe’s carbon equalisation scheme

The Carbon Border Adjustment Mechanism (CBAM), the European Union (EU) policy designed to address carbon leakage by taxing carbon emissions embedded in imported goods, is posing a challenge for companies globally.
But implementing CBAM involves complex administrative and technical processes to calculate the embedded carbon emissions in imported goods accurately. For this, companies must gather and report detailed data on the carbon footprint of their products, which can be challenging, especially for small and medium enterprises (SMEs) with limited resources. More so because this data requirement extends throughout the supply chain, making coordination with suppliers critical.

Thilo Brodtmann, Executive Director of the VDMA, which represents 3,600 German and European machinery and equipment manufacturing companies, says, “The CBAM is flawed legislation in its current form. Companies cannot implement the reporting obligations because they are unable to access real emissions data. The reason is that suppliers are unable or unwilling to provide the necessary data.” He adds that, at the moment, it is also unclear whether European companies can be held liable and sanctioned if no data is available. “Neither the EU Commission nor the national authorities are offering concrete solutions here, such as the continued use of default values for all imports.”

Pankaj Pandey, Chief Operating Officer (COO) at EKI Energy Services Ltd, says, “One of the biggest challenges is calculating emissions. The methodology for this calculation is stricter than other frameworks like the GHG Protocol or product-level footprint analyses. Industry associations should play a role in fostering knowledge sharing, building capacity among manufacturers, and advocating for policies that support industry decarbonisation.”

Implemented since October 2023, CBAM is currently in the transition phase, where companies importing to Europe in sectors including steel, aluminium, cement, electricity, hydrogen, and fertiliser have to report their carbon footprint to their customers. From January 2026 on, the definitive regime in CBAM will kick in, when the carbon price will be charged. Under the definitive regime, the EU importers will declare the emissions embedded in their imports and surrender the corresponding number of certificates each year. This also means that from January 1, 2026, companies under CBAM purview exporting to the EU need to purchase the equivalent number of CBAM certificates to cover these embedded emissions.

Being looked upon as an uphill task, the EU has issued a detailed document and is conducting workshops for businesses to understand and comply with CBAM. But experts believe implementing CBAM will require good administrative support from the EU and the individual states.

As companies across nations importing into the EU are facing several fundamental challenges with the implementation of the CBAM, experts say there is a need for a mechanism that protects companies and does not penalise them if their suppliers refuse to provide the necessary emissions data.