What You Must Know Before CBAM Implementation

💸 "With increased import costs due to carbon taxes, how should we prepare?"

Many companies aiming to expand into Europe are recently encountering difficulties.
With the implementation of the Carbon Border Adjustment Mechanism (CBAM), the fluctuating import prices make it hard to predict costs.
As a result, unprepared companies could face losses.

What Challenges Do Companies Face Before CBAM Application?

The introduction of CBAM presents new challenges for businesses exporting to Europe:

• 📊 Unpredictable Cost Increases: The carbon tax on imports under CBAM fluctuates based on the ETS (Emission Trading System) market price, making it difficult for companies to accurately predict import costs.
• 🌍 Creating a Fair Competitive Environment: While European companies adhere to strict carbon regulations, CBAM imposes a similar burden on companies from other countries. For foreign firms, adapting to the new regulatory environment is essential.

Why Is the Carbon Border Adjustment Mechanism Being Introduced?

The European Union (EU) has several reasons for introducing CBAM:

• 🌿 Promoting Decarbonization: The EU is actively taking steps to reduce carbon emissions, and CBAM is one method to encourage global decarbonization.
• 🔄 Preventing Carbon Leakage: Many companies adhering to carbon regulations within Europe may relocate production to countries with laxer regulations, a phenomenon known as "Carbon Leakage." CBAM is a strategic mechanism to prevent this.

What Should You Be Cautious About Before CBAM Implementation?

As CBAM implementation approaches, companies need to be cautious of the following:

• ⏳ Importance of Calculating Carbon Emissions: It is crucial to precisely account for direct emissions from product manufacturing and indirect emissions from electricity used in production.
• 🔗 Collaborating with Local Import Partners: Adherence to CBAM requires sharing information and cooperating with local European importers and partners to ensure speedy regulatory compliance.

Are You Prepared for Key CBAM Considerations?

The implementation of the Carbon Border Adjustment Mechanism is more than just an issue of increased costs.

Understanding and preparing for the related market and environmental changes is crucial,
and the competitiveness of a company can significantly vary depending on how it manages these regulations.
From calculating carbon emissions to managing supply chains, by considering these various aspects in advance,
it is hoped that you can adeptly adapt to the new business environment.

In the next session, we will delve deeper into the opportunities and challenges that come with CBAM implementation.
Stay tuned!

🛠️ Practical Strategies Tested in the Field

Understanding and addressing the complexities and ever-changing regulations of CBAM require various strategies. Here, we introduce practical tips and strategies needed for CBAM implementation.

🌍 How Should You Manage a Global Supply Chain?

To manage your supply chain with CBAM in mind, transparency in carbon emissions information is paramount. Establishing a system to systematically track and document the carbon footprint throughout the entire product design and manufacturing process is necessary. Some pioneering companies use digital solutions like blockchain technology to track and manage emissions data across the supply chain.

🔄 How to Accurately Calculate Carbon Emissions

Accurately calculating carbon emissions is key to CBAM compliance. This includes both direct emissions and indirect emissions, utilizing various carbon calculation tools. In addition to building internal capabilities, precision in emission analysis can also be achieved by consulting with external experts.

🤝 Partnership with EU Partners

Preparing for CBAM regulations requires significant collaboration with local European import partners. This is crucial for receiving regulatory update information, document submission, obtaining certifications, and establishing a systematic communication framework for sharing information and dividing responsibilities.

---

👥 Real Feedback from Those Who Have Tried It

Let's explore how companies from various industries are preparing and responding to CBAM.

Steel Industry, What are the Results of Carbon Reduction Efforts?

The steel industry is adopting carbon reduction processes in preparation for the introduction of CBAM. For instance, some major steel companies are expanding the use of renewable energy and continuously striving to reduce carbon emissions. According to company representatives, such efforts lay the foundation for reducing future CBAM-related cost burdens.

Challenges and Responses of Aluminium Manufacturers

The aluminium industry is establishing systems to manage precise emission information. By internally developing carbon data management systems to timely acquire CBAM certifications, they aim to optimize costs.

Introduction of Eco-Friendly Systems in Fertilizer Companies

Fertilizer manufacturers are working to reduce carbon emissions by transitioning to eco-friendly facilities. Some companies see these efforts not only improving corporate image but also positively impacting customer reactions.

---

💬 Have More Questions? We Answer Reader Inquiries

Understanding CBAM can be complicated and challenging, so we're here to answer your questions.

What is a CBAM Certificate?

A CBAM certificate is an electronic document used to determine the costs payable based on the carbon emissions associated with imported products. The certificate is calculated based on both direct and indirect emissions and is submitted quarterly.

How Often Must Carbon Emissions be Reported?

Under CBAM regulations, carbon emissions must be reported quarterly to EU authorities. The report should include both direct and indirect emissions.

If We've Already Paid Carbon Costs in Korea, Will the CBAM Costs Decrease?

Yes, partial reduction is possible. However, documentation proving the expenditure is required, and the degree of reduction and recognition depends on the EU's criteria and the respective country's system.

Any Recommended Solutions for Preparing for New Regulations?

There are various types of carbon calculation and reporting software, and companies should choose tools suitable for their scale and emission characteristics. Notable cloud-based platforms are Microsoft Azure, Salesforce Net Zero Cloud, among others, with some developing in-house systems.

Is There a Possibility That CBAM Will Expand to More Items?

Currently, targets include steel, aluminium, cement, fertilizer, electricity, and hydrogen, but the European Commission has suggested potential for expanding the scope to include plastics, organic chemicals, and other items. Continuously monitoring EU policy announcements is important.

CBAM response is a strategic task tied to a company's sustainability beyond immediate responses. Securing competitiveness based on accurate information and a systematic approach is crucial.
The introduction of the Carbon Border Adjustment Mechanism (CBAM) demands a strategic approach in overall business management.
Securing accurate carbon emission management and transparency across the supply chain to establish sustainable response strategies is essential.

For inquiries related to CBAM response strategies,
please contact BK S&P.