CBAM Report
The CBAM is a regulation developed by the European Union to ensure that imports bear a similar carbon cost as products produced within EU. This involves gathering emission readings from production facilities, or using approved calculation processes designed to estimate industrial carbon emissions.
Currently CBAM is in its transitional phase, where reporting requirements are being phased in. From 2026 onwards Importers will have to buy CBAM certificates based on the imported goods production emissions. If you want to know more about CBAM objectives and framework, you can read it here.
We will focus on the overall CBAM Report methodology and make this explanation as agnostic as possible. In a following page we will cover the steps required to run a CBAM emissions calculation (e.g. default values, calculation factors either from lab analyses or standard values, or emissions from flue gas flow).
What are the CBAM Report Steps?
The Report process can be split in five steps:
Map CBAM imports to CN codes: Assess which imports are impacted by CBAM and map them to each respective CN Codes.
CBAM System Boundaries: You will need to define your import’s Supply Chain system borders, to define which production processes emissions should be accounted for.
Identify Complex vs Simple goods: Assess if the imported goods are either complex or simple goods.
Direct and Indirect Emissions: Calculate (or collect) direct and indirect emissions of your imported goods.
1. Map CBAM imports to CN codes
What is the combined nomenclature - CN Codes
The Combined Nomenclature (CN) is a system used for classifying goods for customs and trade statistics within the EU. The system includes preliminary provisions, goods descriptions, duty rates, and a coding system.
The CN Codes are composed of 8 digits, with each sequence of two digits defining the good’s different sectors and sub-sectors:
HS Chapter: This is the first two digits of the HS code and represents a broad sector of goods.
HS Heading: This is a four-digit code, including the “HS Chapter” 2 digits, that falls under the HS chapter, and classifies a broad category of goods within the sector.
HS Subheading: This is a six-digit code, including the “HS Heading” 4 digits, that refines the classification of goods within the HS heading.
CN Subheading: The Combined Nomenclature (CN) subheading is an eight-digit code that adds further 2 digits to the “HS Subheading” 6 digits.
Mapping CBAM goods to CN Codes
Identify potential imported goods impacted by CBAM: This involves a detailed description of the goods, understand their components and usage.
Reference CBAM Regulation to start the mapping process: The next step involves referring to the Annex I of the EU Regulation 2023/956, which specifies the goods subject to CBAM.
Match Goods with CN Codes: Importers must match their products to the correct CN codes. This involves a detailed comparison of the product specifications with the descriptions provided in the CN code directory. It is crucial to run this step accurately as it will determine the applicability of CBAM to each imported item.
2. Define the System Boundaries
Understanding Supply Chain System Boundaries
The concept of System Boundaries in the “CBAM world” refers to the boundaries within which all production processes and its emissions are accounted for a given product. The System Boundaries will determine the emissions scope that has to be considered in the calculation. This boundary definition is not a critical step when using default values in the calculation, but it will need to be defined once more accurate measurement requirements go into effect.
Note: From a calculation perspective, it is also critical to identify the production routes, which defines the production technology used. However we will not yet explore the nuances of the production routes and its impacts on emissions calculations.
Steps to Define the System Boundaries
Map your Supply Chain: Pinpoint all your production processes. Map out the processes from transforming raw material all the way to manufacturing the final product. This includes assembly lines, fabrication processes, and finishing operations. Also map your supply chain emission sources; consider emissions from machinery, heating and cooling systems, production line operations, and auxiliary processes.
Define where does the CBAM System Boundary start: Typically starts at the point where raw materials are first used in the production process of the CBAM-covered goods.
Define where does the CBAM System Boundary end: The boundary ends when the product has completed the final stage of production and is in its sellable or distributable form. The inclusion of packaging processes depends on whether the packaging is integral to the product's use or simply for transport. The boundary often extends to the loading of products onto trucks, ships, or other forms of transportation if this is considered part of the production site's operations.
Specify from start to end what processes are included: Emissions that occur from sources owned or controlled by the company, or from suppliers. This includes emissions from the production processes, such as those from furnaces, boilers, or chemical reactors. The boundary should also encompasses the consumption of electricity and heat that is used in the manufacturing process. Later here we will define the difference between direct and indirect goods.
What processes not to include in the System Boundaries
Extraction of Raw Materials: The initial extraction processes (e.g., mining, drilling) of raw materials are typically outside the CBAM system boundaries.
Downstream Emissions: Emissions that occur after the goods have left the production site, such as during transportation should not be included. It also should not include emissions from the distribution and retail of goods, as well as any end-of-life processing.
Unrelated Business Activities: Emissions from activities not directly related to the production of the CBAM-covered goods, such as those from ancillary services (e.g., corporate offices, unrelated manufacturing processes) within the same company should also be excluded.
3. Identify Complex vs Simple goods
Understanding the Difference Between Simple and Complex Goods
The classification of goods as either simple or complex determines how their embedded emissions are calculated. This is mainly relevant once stricter CBAM emission calculations go into effect. As an example, if using default values this distinction is not required as the default values already include the embedded emissions.
To understand what is embedded emissions, it refers to the greenhouse gas (GHG) emissions that are released during the entire lifecycle of a product. As stated before, CBAM only considers emissions from specific production processes and not emissions from the entire lifecycle.
So what is the distinction between the Complex and Simple goods?
What is a Simple Good?
Simple goods are products whose embedded emissions are solely based on the emissions generated during their own production processes. These goods do not incorporate significant emissions from precursor materials. In essence simple goods are mainly associated with processing of raw materials.
Example: a simple good might be raw aluminum, where the primary emissions considered are those from the aluminum smelting process itself.
What is a Complex Good?
Complex goods are products that include emissions from precursor materials used in their production. These precursor materials themselves have embedded emissions that have to be accounted for in the product’s emissions calculation.
Example: Cement is a complex good. Its production involves the use of clinker, which is a precursor material with its own embedded emissions.
4. Direct and Indirect Emissions
Understanding Direct and Indirect Emissions
Direct and indirect emissions form the basis of how CBAM structures the different emission sources. Here’s what each term means:
Direct Emissions: Are emissions from sources that are owned or controlled by the entity producing the goods. This includes emissions from on-site fuel combustion, industrial processes, and any other activities that release greenhouse gases directly at the production site.
Indirect Emissions: In simple terms these are emissions that occur as a consequence of the activities of the entity but from sources not owned or directly controlled by it. The most common example is emissions from the generation of purchased electricity, steam, heating, and cooling used by the entity.
Identification of Emission Sources
For Direct Emissions you should consider combustion or process emissions.
Combustion Emissions:
On-site Boilers and Furnaces - These include emissions from burning fuels (e.g., natural gas, coal, oil) for heat or power generation.
Industrial Ovens and Kilns - Used in processes like baking, smelting, or sintering, which involve high-temperature operations.
Process Emissions:
Chemical Reactions - Emissions from chemical transformations during manufacturing. For example, CO2 released during the calcination of limestone in cement production.
Metal Smelting and Refining - Emissions from the reduction of metal ores to pure metals, often involving carbon sources like coke.
For Indirect Emissions you should consider the purchased energy sources from your service providers.
Purchased Electricity:
Emissions from power plants that generate the electricity consumed by the manufacturing facility.
Renewable vs. Non-renewable Sources - Needs to be considered the emission factor for electricity will depend on the energy mix of the grid. EU commission provides indicators for these factors.
Purchased Steam, Heating, and Cooling:
Emissions from facilities that produce steam, heat, or cooling energy used by the manufacturing plant.