How Will CBAM Change Your Export Strategy?
🚢 "How much will carbon costs impact our products when exported to Europe?"
For companies preparing to export, securing competitiveness in the export market is critical. Companies targeting the European market should particularly pay attention to the emergence of the Carbon Border Adjustment Mechanism (CBAM). This import adjustment mechanism, akin to a carbon tax implemented by the European Union (EU), can have a significant impact on the competitiveness of products when exported to Europe.
The regulation known as CBAM assigns a price to the previously 'invisible' carbon and adjusts it in the form of a border tax, prompting tangible changes in a company's supply chain strategy and export pricing structure.
Guide to Carbon Border Adjustment Mechanism for Beginners
CBAM is essentially designed to ensure that import companies bear some of the costs that occur from adhering to strict climate regulations like the Emissions Trading System (ETS) within Europe. European industries have already transitioned to a decarbonized production system at considerable expense, while products produced in countries with looser regulations could potentially enter the European market at lower prices.
To prevent this, the EU levies costs equivalent to carbon emissions on certain imported items, promoting fair competition, preventing carbon leakage, and advancing global decarbonization.
CBAM Scope and Preparations for Companies
CBAM initially applies to the following six items: steel, aluminum, cement, fertilizers, electricity, and hydrogen.
However, as the European Commission has mentioned the potential expansion of CBAM to other high carbon-emission industries, such as plastics or organic chemicals, exporting companies need to keep a continuous eye on CBAM's scope.
Things Companies Need to Prepare
Accurate Calculation of Carbon Emissions
- You must calculate not only direct emissions from the production process but also indirect emissions, such as those from electricity used in manufacturing.
- This needs to be reported quarterly according to CBAM reporting requirements and will serve as a basis for future cost calculations.
Establish a System for Managing Supply Chain Carbon Emission Information
- It's necessary to systematically collect and manage carbon emission data throughout the entire value chain, from raw material mining and production to the final product. This also aligns with a company's ESG (Environmental, Social, and Governance) strategy.
Collaborate with Import Partners in the EU
- Since the purchase of CBAM certificates and related formalities must be handled by a registered declarant in the EU, close collaboration with local import partners is crucial. Clear division of responsibilities and establishment of an information-sharing system is necessary.
Why Should You Pay Attention to CBAM?
CBAM is not just a new import regulation but is among the international standards required for companies amid the transition to a decarbonized society. Companies with low-carbon production techniques or eco-friendly processes can secure a favorable position in price competitiveness, heightening the necessity for strategic investment and preparation.
Also, if costs related to greenhouse gas reduction or carbon tax have already been shouldered within Korea, there are mechanisms in place to prevent double burdens during CBAM cost calculation. Thus, managing related data appropriately is necessary.
The Carbon Border Adjustment Mechanism not only introduces new regulations but also offers a market environment where eco-friendly management capabilities become a competitive advantage.
A clear understanding and prior preparation of how the Carbon Border Adjustment Mechanism will alter corporate export strategies are no longer a choice but a necessity. The ability to respond to new standards from a long-term perspective is directly linked to the survival and growth of the company.
🛠️ Practical Strategies Tested on the Ground
✅ Utilizing Automated Tools for Carbon Emission Calculation
Export companies need a transparent and accurate carbon emission calculation system to comply with CBAM. As a result, there is a rising introduction of IoT and AI-based automated software, allowing real-time collection and analysis of direct and indirect emissions data from production sites. The ability to better predict costs and respond to regulations through these means is evident in many industrial applications.
✅ Implementing Education and Awareness Programs
CBAM response requires a company-wide approach, where not only operational personnel but all employees should fully understand and collaborate on the system. Using internal workshops, external lectures, and online learning materials to regularly provide educational opportunities on carbon regulations and reduction strategies is effective.
✅ Building a Supply Chain Aiming for Carbon Neutrality
Reducing environmental impact across the supply chain is possible by choosing raw materials with lower carbon emissions compared to other suppliers or adopting low-emission logistics means and routes rather than sea transport. This ultimately acts as a factor reducing the cost of purchasing CBAM certificates.
Preparing for Unforeseeable Market Fluctuations
Since carbon prices in CBAM are determined based on EU ETS market prices, which have low predictability and high volatility, companies must regularly monitor related market trends and regulatory changes and, if necessary, utilize analysis and consulting from specialized institutions. Carbon cost scenario modeling should also be actively considered as part of a risk response strategy.
👥 Real Reviews from People Who Have Actually Used It
Experience of a Domestic Aluminum Manufacturer, Company A
This company established an early collaboration group with European partners to prepare for CBAM implementation and built a system for regular reporting of carbon emission data. As a result, they were able to reduce confusion during the initial phase of regulation implementation and maintain operational continuity of the supply chain. "CBAM may be challenging, but if you build a system in advance and align with the regulatory framework, you can gain distinguished trust in the market," a representative stated.
Advice from an Electrical Component Manufacturer, Company B
This company has achieved both CBAM response and ESG goals by introducing renewable energy and establishing a carbon assessment system within processes. They use a self-developed management platform to monitor emissions across production and logistics in real time, which leads to increased response efficiency and cost-saving effects. "CBAM is not merely about costs; it's a new standard for testing management capabilities," offers insightful feedback from the field.
The Carbon Border Adjustment Mechanism (CBAM) has become a significant variable in export strategy formulation, with varying market positions depending on each company's readiness level.
Continuous monitoring of regulatory changes, along with the establishment of a sophisticated carbon management system, is required.
For detailed inquiries about CBAM response strategies, please contact BK S&P.
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