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How to be in control of your CBAM costs

The European Union's Carbon Border Adjustment Mechanism or CBAM imposes a border levy for importers of fertilisers, steel, aluminium, electricity, hydrogen and cement, applied to direct and indirect emissions. The CBAM adds additional regulatory burden for importers as well as extra cost, and means changes to the EU ETS that will impact companies in supply chains within Europe and outside, not least because the border levy applies only to imports, with no equivalent export subsidy. 

Greenstar Capital provides its carbon market and regulatory expertise to importers across Europe and further afield. 

We can assist importers with: 

  • Identifying what information you need to ask your suppliers for

  • Understanding key dates and deadlines

  • Calculating your exposure to the CBAM, in tonnes CO2 and in terms of likely CBAM credit costs and EU ETS market conditions in 2026

  • Financially hedging against forward carbon risk associated with the CBAM

CBAM credits expire after two years, and are limited in price to last week's average spot EUA auction price. EUAs can serve as an indirect hedge against future CBAM costs given the direct linkage between the two systems. 

Exposure to CBAM

the EU's carbon border levy covers both direct emissions produced on site - process emissions in cement production or from burning fuels for example - and also indirect emissions, meaning the carbon intensity of electricity used to produce the goods that are subjec to CBAM. 

In contrast, the EU ETS only covers direct emissions, though all electricity consumers buying from the grid are also exposed to the carbon price in their electricity (see our EU ETS explainer for more details on price setting and how the EU ETS has helped to reduce energy sector emissions so far). 

Given the 'hidden' nature of a lot of carbon costs in electricity in Europe, by comparison CBAM buyers may find that their CBAM bill looks far higher than any EU ETS costs.

The below example shows CBAM and direct EU ETS estimated costs for an aluminium producer, producing secondary aluminium (recycled) and having to buy EUAs for that, but also importing some primary aluminium. 

Companies with CBAM exposure can, therefore, look to the EUA market and potentially more interesting, cheaper market conditions over the next couple of years before requirement to surrender EUAs under CBAM comes into force in 2026. 

Contact us for help with calculating your CBAM exposure and hedging against financial risk.

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