How EU rules are changing the game for carbon reporting in manufacturing

Posted on 5 Jun 2024 by Molly Cooper
Partner Content

The European Union’s Carbon Border Adjustment Mechanism (CBAM) represents a significant step toward integrating carbon accountability into global trade. As the full implementation approaches, importers of goods like steel, aluminum and fertilisers are navigating a complex landscape of data management and supplier engagement.

At the policy level, the success of importers in obtaining emissions data from their suppliers will influence the success of the regulation, which is designed to ensure a level playing field between carbon pricing on goods produced inside versus outside the EU.

The challenge of primary data

A critical aspect of the CBAM is the transition from using default emissions values to primary data. Default values are provided by the EU for each CN code. Whereas, primary data is calculated and reported by suppliers themselves – reflecting the actual emissions of one importer’s consignment versus another’s.

The deadline for this shift is 31 October, 2024. Failure to comply could result in fines of 10-50 Euros per tonne of mis-reported carbon dioxide equivalent (tCO2e).

The European Commission has made it clear it doesn’t intend to water down the primary data requirement, which supports the CBAM’s objective of creating a fair comparison between EU Emissions Trading System (ETS) measurements and those from third-country installations. The EU ETS itself is currently rigorous and penalises any misreported tCO2e.

Why primary data matters

Using primary data ensures accurate, consistent and comparable carbon reporting.

Default values can mask the true carbon footprint of imported goods, undermining efforts to price carbon accurately and incentivise lower emissions. From 2026, companies importing steel and aluminum products from countries with less stringent carbon reporting standards will not only need to provide precise emissions data, but pay a price on those emissions, impacting manufacturers in a range of industries from automotive to appliance producers.

By requiring accurate emissions data, the CBAM thereby encourages suppliers worldwide to improve their emissions tracking and reduction efforts. This, in turn, supports global carbon reduction initiatives while helping the EU achieve its climate goals.

Navigating the data collection process

Collecting primary emissions data from suppliers can be challenging, particularly for small and medium-sized enterprises (SMEs). Many SMEs lack the infrastructure to handle the additional bureaucratic and cost burdens associated with CBAM compliance. For example, a small business importing low volumes of fasteners like screws and bolts may struggle with the requirement to identify specific production installations.

However, there are strategies that can help businesses of all sizes.

Firstly, businesses should engage with their suppliers early and often. Clear communication about the importance of providing accurate emissions data and the potential consequences of non-compliance is essential – as well as any assurance on the secure handling of their data. Suppliers may need support in understanding and implementing the EU’s methodologies for calculating emissions, so offering educational resources and guidance can be beneficial.

For example, Atkore, a leading manufacturer of framing and cable management systems, uses CarbonChain’s solution to request supplier data and run dedicated educational webinars. For Supply Chain Director Lyn Knox, “Accurate carbon reporting is essential for meeting the EU’s stringent requirements, and properly engaging our suppliers is a springboard for our long-term collective sustainability efforts beyond the CBAM deadlines.”

Secondly, leveraging technology can simplify the data collection process and reduce the administrative burden. Tools like CarbonChain’s CBAM Reporting Hub can help businesses securely collect and validate data, generate XML declarations, and educate suppliers on emissions monitoring methodologies.

Potential solutions for SMEs

To help exempt SMEs and low-volume traders from the most onerous requirements, the European Commission could consider increasing the de minimis threshold, currently set at EUR 150. Additionally, allowing smaller importers to use default values for longer could provide a practical solution – the penalising mark-up applied to default values would still incentivise the collection of primary data.

Incorporating weight as a factor in the de minimis threshold could provide a more nuanced approach, recognising that some goods, despite their low value, may have significant carbon footprints, and vice versa.

Preparing for the future of carbon reporting

The CBAM marks a transformative shift in global trade practices. While the transition to primary data poses challenges, it is essential for achieving the CBAM’s objectives and supporting global carbon reduction efforts.

Whether your company is a small distributor of aluminum ingots, or a large manufacturer of automotive parts, it’s time to prepare to meet the October deadline – and use CBAM as a lever for your company’s sustainability goals. Engage suppliers and leverage technology, not only to track CBAM-covered emissions, but to collect full emissions data across your product life-cycles, and set emissions targets with suppliers.

Until October 2024, eligible organisations can use self-serve tools within CarbonChain’s CBAM Reporting Hub for free.

Nick Ogilvie, CBAM Specialist & Customer Success Manager, CarbonChain  has supported multiple declarants and installations with CBAM reporting and emissions accounting since the regulation came into force. Nick brings a wealth of experience from his background in engineering and financial accounting, as well as his previous role at PwC, where he worked in regulatory reporting and assurance implementation across various climate and sustainability-related disclosure frameworks.

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