Prepare your trade departments for CBAM with these 6 steps
This blog post explores the complexities of CBAM, its implications for global trade, and, crucially, how both trade and tax departments worldwide must prepare for this seismic shift. This blog post explores the complexities of CBAM and its implications for global trading. It also explains how trade and tax departments must prepare for the seismic shift. CBAM aims to level the playing field by establishing a price for the carbon content of certain goods imported into the EU. This will ensure that imported products have the same carbon pricing as goods made in the EU.
Initially, CBAM will apply to imports of cement, iron and steel, aluminium, fertilizers, electricity, and hydrogen. Importers will be required to purchase CBAM certificates which show the emissions of their products. These certificates are calculated based on the carbon price in the EU Emissions Trading System (EU ETS).
What does CBAM mean for global trade?
Increased costs:
Importers will face possible increased costs due to the purchase of CBAM certificates. This will likely affect pricing strategies and reduce demand for carbon-intensive imports from countries with less stringent environmental policies.
Shift in trade flows:
- CBAM could redirect trade flows, favoring imports from countries with robust climate policies and cleaner production processes. This might lead to new trade partnerships and alliances.CBAM wants to make sure that competition is fair
- : But people are worried about how competitive industries in developing countries are, which could affect their exports to the EU.Innovation and Investment:
- CBAM is expected to drive innovation and investment in cleaner technologies. Businesses, both within the EU and globally, will be incentivized to reduce their carbon footprint to remain competitive.To meet upcoming regulations on global trade, companies will likely need to invest in tools, such as global trade software, designed for gathering and compiling supplier data, calculating emissions, and generating reports for timely submission. Exporters will also have to calculate their own carbon emissions, and provide this data to EU importers. Most suppliers are unaware of how to meet the requirements. This makes it important to adapt and use resources in a timely way.
- 6 steps to prepare for CBAM’s implementation:CBAM’s implementation will significantly impact tax and trade departments globally. They will be crucial in navigating the new landscape and ensuring that compliance. Here’s what tax departments can do to prepare:
1. Understand the regulatory framework
A complete understanding of CBAM legislation is essential. This includes its scope, calculation methods, reporting obligations and potential penalties. Tax and trade departments need to stay updated on any revisions or amendments to the regulation.
2. Data management and tracking
CBAM calls for detailed tracking and reporting on embedded emissions in imported products. Tax and trade departments must develop or acquire
robust data management systems
to accurately collect, verify and report emissions. This might involve collaborating with suppliers to obtain reliable emissions information.
3. Collaboration and communicationEffective communication and collaboration is essential. Tax and trade departments must engage with internal stakeholders such as supply chain, legal, and procurement teams to understand the impact of CBAM. Communication with external stakeholders such as customers and suppliers is essential to manage expectations and ensure compliance throughout the supply chains.4. Process automation and technology adoptionManual tracking and reporting of emissions data can be complex and prone to errors. Investing in technologies that simplify data collection, calculation and reporting can improve efficiency and accuracy. This will also ensure CBAM requirements are met in a timely manner.
5. Risk assessment and mitigation
Conducting comprehensive risk assessments is essential to identify potential areas of non-compliance and financial exposure. Tax and trade departments need to make plans to reduce CBAM’s impact. These plans may include looking at other ways to obtain products, investing into cleaner technologies, or changing price models to reduce the financial impacts of CBAM.
6. Building expertise and training
CBAM introduces a number of new concepts and complexities. Training programs are needed to equip staff with the knowledge and skills necessary to understand and implement CBAM requirements. This might involve hiring new talent with specialized expertise in carbon accounting and reporting.
Embracing the future of trade with CBAM
CBAM signifies a significant shift in international trade, integrating environmental considerations into trade policy. It is a challenge, but it also presents opportunities for businesses to be more sustainable and competitive in an environment with carbon restrictions. Tax and trade departments will be able to successfully manage the challenges of CBAM by being prepared ahead of time, utilizing technology, and working in tandem. They can ensure that their organizations are compliant and successful in a changing world of global trading. The Carbon Border Adjustment Mechanism focuses on carbon leakage. Other parts like the Corporate Sustainability Reporting Directive and European Sustainability Reporting Standards have broader implications. The CSRD, with its emphasis on comprehensive sustainability reporting
, will likely require
tax teams to play a greater role in data collection, verification, and reporting of environmental taxes and carbon price mechanisms. This is because the CSRD with its emphasis on comprehensive sustainability reporting
likely require
tax teams to play a more prominent role in data collection, verification, and reporting on environmental taxes and carbon pricing mechanisms.
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