If you supply certain categories of goods to the EU, your customer has probably already requested information about the product’s carbon content. This is due to the CBAM regulation, which mandates importers to declare the embedded carbon in their imports. Calculating these numbers may be a new task for many suppliers. To assist, we’ve created this guide on CBAM for Suppliers to help companies better prepare for doing business with customers in the EU.
Setting the scene
In response to their commitments to the Paris agreement, the EU developed the European Green Deal. This package of policies is designed to set out how the bloc will transition towards becoming climate neutral. Key to this is a reduction in emissions.
Central to the Green Deal is the “Fit for 55” strategy, aiming to cut emissions by 55% by 2030. To facilitate this, the EU established an Emissions Trading Scheme (ETS), a cap-and-trade system targeting high-emission sectors such as iron, steel, aluminium, fertiliser, cement, hydrogen, and energy.
Companies in these carbon-intensive industries receive an emissions allowance. Exceeding this allowance requires purchasing additional credits on the ETS market, while those under their allowance can trade their surplus.
Unintended consequences
A downside to this market is that companies may relocate production to regions without emission pricing to avoid the ETS cap, known as carbon leakage. To counter this, the EU introduced the Carbon Border Adjustment Mechanism (CBAM).
CBAM mandates that importers of carbon-intensive goods into the EU declare the carbon content and pay for the embedded emissions. This aims to prevent emissions offshoring and encourages the development and purchase of lower-carbon alternatives.
The regulation is being introduced in two phases. Currently, we are in a transition phase until the end of 2025. During this phase importers must declare the carbon within all imports within scope of CBAM, but do not have to pay a fee. This is to help importers build the required capabilities and also for the EU to understand the quantity and quality of submissions.
In 2026 CBAM will enter its definitive phase. From 1st January 2026, importers will have to purchase CBAM certificates to the value of carbon within their imports and submit these along with their customs declarations to the relevant national authority within the EU.
Calculating Carbon Content
Anyone importing goods into the EU have several options in how to calculate the carbon content of the goods. They range from methods which provide a high degree of precision to what’s known as default values which have the least amount of precision.
The default values are provided by the EU for each category of goods within CBAM. Goods are referred to by their Combined Nomenclature (CN) codes, which is a classification system. For each CN there is a CBAM default value which is derived from the expected production costs and typical carbon content of goods produced in specific markets. These values, from our experience, overestimate the values for any given CN by as much as a third. Given this, importers are going to great lengths to avoid the use of default values.
Avoiding default values is understandable, as there is significant cost risk associated with their use. To navigate this, importers must turn to their suppliers to provide more accurate values.
Supplier Pressure
There is no legal requirement for suppliers to provide importers with information to meet CBAM obligations. This lack of mandate creates tension in the market, leading to challenging conversations within supply chains.
Supplier-importer relationships are often asymmetric, with large suppliers selling to small importers and vice versa. The power dynamics within these relationships typically dictate the calculation methods adopted.
Large companies, having invested resources in calculating their CBAM values, are increasingly providing this information. Their ability to monitor production methods ensures accurate data, and their scale often results in greater production efficiency, positively impacting their CBAM values.
Conversely, smaller suppliers are beginning to face challenges. Large importers, recognising their CBAM risk exposure for 2026, are pressuring suppliers for accurate information. For small-scale producers, this demand is resource-intensive and challenging. They often find themselves squeezed between large raw material suppliers and large customers consuming their finished goods.
CBAM Guidance for Suppliers
To help suppliers respond to requests for improved information from their customers we’ve put together guidance to help structure an approach. This is developed from work we’ve done with companies outside the EU who have already faced this challenge.
The approach is broken down into four stages. Our overall advice is to work through these stages as quickly and efficiently as possible and accept that an iterative approach is likely your best strategy. Any improvement on default values you can provide to your customers will be welcomed. Communicating and demonstrating an intent to improve information over time will strengthen your relationship with your customers and reduce the risk of them sourcing alternative suppliers for their goods.
Communicating Intent
Engaging your customers early is essential. Communicating with them your intent to provide improved information over time will earn their trust and respect. In some cases, they may offer support since it is in their interests to improve information. One supplier we worked with helped their customer to avoid an estimated €1.5m a year in CBAM costs. A reason in itself for a joint investment approach.
We’ve found that the more you communicate with your customers the lower the tension becomes. Many operators in the market are not providing improved information, but signalling your intent to improve gives you a potential advantage.
Communicate early, often and with clarity about progess.
Mapping Out Production
To meet CBAM requirements, suppliers must provide three key pieces of information for each category of goods supplied: indirect emissions, direct emissions, and any carbon fees paid up to the point of import. This leads to a data model such as the below table:
| Product Name | CN Code | Indirect Emissions (T/CO2e) | Direct Emissions (T/CO2e) | Carbon Fees Paid (€) |
|---|---|---|---|---|
| Holding Tank | 7309 0010 00 | |||
| Seperation Tank | 7309 0059 00 | |||
| Filtration System | 7309 0059 00 | |||
| Tank Housing | 7308 9098 90 | |||
| Tank Superstructure | 7308 9098 90 |
To populate the data model which describes those three values for each of your products you will have to map your production processes. This takes four steps:
Step one: identify all products within the scope of CBAM. Use the list of CN codes in scope for CBAM to assess your product catalogue for relevant items.
Step two: For each product, identify all purchased CBAM relevant material inputs involved in its production, known in CBAM terms as pre-cursors. For instance, if you fabricate steel goods, it is crucial to identify the flat and long steel materials you purchase for the fabrication process along with wire welds and other such materials.
Step three: Compile a list all potential suppliers for each input material. We find most companies have a range of suppliers they use to give them options in fluctuation of market prices for materials. You will need to engage these suppliers to determine what information they can provide about the materials they supply.
Step four: Analyse the production steps required to transform these materials into a unit of finished goods and the energy use in each step. In the example of steel products, this might break down into cutting, welding and galvanizing for example. Calculate the emissions associated with each activity, including both indirect emissions from electricity usage and direct emissions from combustion activities.
Ideally, break down the process into specific stages to gain an accurate understanding of where emissions are generated. This exercise not only aids in CBAM compliance but also aligns with broader business goals of achieving net-zero targets.
In cases where isolating energy use by production stage is not feasible—such as when electricity is metered at the facility level rather than by production stage or piece of equipment—use the total electricity consumption for the facility to calculate emissions per unit of production. Identify these areas for future improvement to enhance accuracy over time.
Engaging Suppliers
Engage your suppliers early to ascertain the information they can provide. Your ability to deliver high-quality CBAM data to your customers hinges on the quality of information received from your suppliers.
A collaborative approach is most effective in obtaining accurate information. Clearly communicate your reasons for needing the data and emphasise the value of their contributions. Just as customer engagement enhances your relationships, you have the opportunity to strengthen ties with your suppliers.
Our experience indicates that many suppliers are willing to assist. Often, this will be their first encounter with CBAM, requiring some level of education. Providing them with useful information or even direct training can be a worthwhile investment.
The information they supply about your purchases will contribute to your model under the indirect emissions category. Companies utilising just-in-time supply chains can map material purchases to production batches of finished goods, enhancing accuracy. Businesses using stockpiled materials may find it more challenging to allocate specific purchases to production batches.
Utilising the information at hand will enable you to initiate CBAM value calculations, serving as a crucial first step. While this may suffice for some customer requests, for others, it marks the beginning of an ongoing improvement process.
Prioritising Improvements
As you develop your CBAM data model, you will identify key areas for improvement. This might involve collaborating with suppliers to enhance a critical material input or refining the accuracy of energy monitoring in your production processes. The key is to pinpoint areas within your value chain for improvement and define the anticipated outcomes.
Key areas often prioritised include:
Energy Monitoring: Enhancing energy monitoring across your production processes not only benefits your CBAM calculations but also leads to operational efficiencies, providing added value. Clients typically prioritise this early as it supports broader business incentives.
Supplier Strategy: CBAM requirements present an opportunity to reassess your supplier strategy. Prioritise suppliers who can provide detailed information, and consider mandating information supply in the next review of your supplier code of conduct and contracts.
Materials Choices: CBAM can drive a reassessment of the materials used in your production processes. For companies with significant exposure, it may shift the business case towards adopting more sustainable materials.
Management Training: Investing in education for your management teams enhances CBAM compliance. Well-informed managers can make operational decisions that improve CBAM values and optimise production processes and supplier relationships.
ERP Improvements: Aligning shipments of goods to input materials can significantly impact CBAM values. Enhancing the traceability of inputs to production increases the accuracy of your CBAM calculations, whether you operate just-in-time supply chains or maintain material stocks.
Data Management: Given that CBAM is a long-term requirement, building scalable data management systems early on is crucial for efficiency. While spreadsheets may be the initial tool of choice, investing in robust systems will improve accuracy, consistency, and reduce manual effort over time.
By addressing these areas and others, you can develop a resilient and effective approach to CBAM compliance focused on continuous improvement.
How Jordisk can help
If you are a supplier or an importer, we can help.
We have experience of collaborating with businesses of all sizes on all sides of CBAM regulations. Our clients range from large-scale EU importers managing extensive supplier networks to small enterprises within their supply chains. Leveraging our deep expertise, we offer strategic guidance to help you comply with CBAM requirements efficiently and effectively.
Our pragmatic approach utilises tools to streamline your implementation process. Our team of specialists will work closely with you to clarify your obligations, develop the necessary processes and data frameworks, and facilitate seamless communication with your suppliers and customers. Let us help you build a resilient and compliant CBAM strategy, get in touch to learn more.
