Impact of New EU Carbon Emissions Tariff on Supply Chains: Businesses Brace for Change

As the European Union prepares to usher in the first enforcement phase of its Carbon Border Adjustment Mechanism (CBAM) on October 1, a new report from The Conference Board sheds light on the far-reaching implications of this groundbreaking initiative. The CBAM, designed to curb carbon emissions, will impose tariffs on carbon-intensive imports, equalizing the playing field with EU-made products. The Conference Board's report, titled 'Navigating Europe's Carbon Tariff: What is CBAM and What Does it Mean for Business?' draws attention to how this measure will impact businesses and supply chains.

Surveying European Members of The Conference Board, including senior procurement and sustainability executives, the report reveals significant expectations of price increases among respondents. A staggering 83 percent anticipate rising prices, and 75 percent foresee CBAM influencing their future purchasing decisions.

"Our Europe-based Members are clear that implementing CBAM will increase prices of carbon-intensive products, possibly with knock-on effects for consumers," stated Sara Murray, Managing Director, International, The Conference Board. "Our latest insights will help our Members better understand their responsibilities and the challenges they must prepare for over the coming 18 months."

Key findings from the report indicate that prices for regulated products are expected to surge from the beginning of the implementation, years before the first tariffs are collected:

1. Immediate Price Increases: In the initial phase of CBAM, importers dealing in six regulated categories—iron & steel, cement, fertilisers, aluminium, electricity generation, and hydrogen—must commence reporting carbon emissions to EU authorities. Due to limited administrative capacity in some EU countries, the impact on prices is likely to be felt even before the tariff charging period begins, set for January 2026, at an estimated €100 per tonne of carbon emissions.
2. Verification Bottlenecks: A lack of qualified 'verifiers' responsible for verifying importers' declared carbon emissions could lead to bottlenecks at key locations. Several EU member states, including Belgium, Ireland, have a shortage of verifiers or none at all.
3. Uneven Customs Capacity: Differences in customs efficiency among EU member states pose additional challenges for CBAM implementation. For example, Italy, the EU's largest iron and steel importer, has a lengthy customs declaration process, potentially causing delays at Italian ports.
4. Short-Term Solutions: While the EU is expected to ease accreditation rules for verifiers, this may not fully address the issue as many verifiers are already operating at capacity. Verifiers often decline new requests to audit European-based manufacturers' emissions.

The report underscores the need for swift action to resolve administrative challenges, as CBAM could potentially impede the European economy. It also highlights the varied impact depending on the origin of imports, as exports from countries with existing carbon pricing systems may not be subject to the tariff if their carbon price aligns with the EU's Emissions Trading Scheme.

The introduction of CBAM marks a significant step towards reducing carbon emissions but poses complex challenges for businesses and supply chains. Companies importing goods into EU countries must carefully evaluate their strategies to meet demand in this evolving regulatory landscape.