Understanding the CBAM

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What is the CBAM?

The Carbon Border Adjustment Mechanism (CBAM) is a policy tool designed by the European Union (EU) to address carbon leakage and ensure that imported goods are subject to the same carbon costs as products produced within the EU.

Importers into the EU must report embedded emissions of covered products since January 2024. Initially, CBAM will cover sectors with high carbon emissions and high risk of carbon leakage, such as cement, steel, aluminium, fertilisers,hydrogen, and electricity. The policy is part of the EU's "Fit for 55" package.

Importers of certain goods into the EU must purchase carbon certificates corresponding to the carbon price that would have been paid if the goods had been produced under the EU's Emissions Trading System (ETS).

The overall objective of the CBAM is to prevent companies from relocating production to countries with less stringent carbon regulations, thus avoiding the costs associated with the EU’s carbon pricing.
 

Implications to consider

- Increased costs as importers must buy CBAM certificates linked to carbon emissions, adding a cost layer based on carbon content.

- Compliance challenges as accurate emissions data reporting is crucial to avoid fines between €10 and €50 per ton of unreported emissions.

How PPAs can help mitigate CBAM's impact

- Lower carbon footprint as sourcing electricity through PPAs from renewable sources can reduce embedded emissions, leading to fewer CBAM certificates needed, translating to cost savings.

- PPAs can provide corporations with a competitive edge as companies with robust renewable energy strategies attract eco-conscious consumers and investors, positioning themselves advantageously in global supply chains.

Conclusion

In summary, the EU’s CBAM regulations will reshape global trade and emissions reporting. PPAs from renewable sources will offer a strategic path to reduce carbon footprint and CBAM costs, while enhancing competitiveness in sustainable markets. Embracing renewable energy through PPAs prepares companies to navigate CBAM effectively and lead in a greener economy. 

Get in touch with our PPA advisory team today and let us help your company navigate the challenges of CBAM and their implications for PPAs.