Climate change is no longer just a future concern; it’s reshaping the way we live, consume, and do business right now. For companies, especially those engaged in international trade, two terms are becoming increasingly significant: Carbon Border Adjustment Mechanism (CBAM) and carbon footprints.

These concepts sound similar, but they serve entirely different purposes. Whether you’re a policy wonk or a business leader trying to navigate the shifting landscape, understanding these terms is critical. Let’s break it down in plain, straightforward language.

Think of a carbon footprint as the total carbon emissions caused by your actions. This can apply to an individual, a company, or even a product. For example:

• If you’re manufacturing clothing, your footprint doesn’t just include emissions from running your factory. It also includes the impact of sourcing raw materials, transporting goods, and even energy use in retail stores.

Carbon footprints became mainstream thanks to efforts like BP’s campaign in the early 2000s, which got people thinking about their impact on the planet. These days, businesses use carbon footprints as a baseline to measure and reduce their emissions. It’s become part of the broader push for sustainability.

For example, let’s say a steel manufacturer in China exports to the EU. If their production processes rely on coal-fired power plants, their goods will face higher tariffs under CBAM. The goal is simple: level the playing field for EU producers who already operate under strict carbon rules while nudging global players toward greener practices.

At their core, carbon footprints and CBAM serve different functions, even if they both tackle emissions:

• Impronta di carbonio: A tool for measurement. It tells you how much greenhouse gas you’re responsible for and points out areas where you can cut back.
• CBAM: A policy mechanism. It enforces accountability by making companies pay for the carbon emissions linked to their imported goods.

In other words, a carbon footprint shows what, while CBAM deals with the how.

CBAM is Levelling the Playing Field

CBAM is rewriting the rules of global trade. By imposing tariffs on carbon-intensive imports, it creates incentives for exporters to clean up their operations. For instance, Turkish steelmakers exporting to the EU are already exploring green hydrogen technologies to reduce emissions.

Tensions in Trade

Not everyone is thrilled about CBAM. Developing nations, in particular, argue that it’s unfair. These countries often lack access to the expensive technologies needed to cut emissions. On the other hand, countries like the U.S. are developing their own climate policies, like the Inflation Reduction Act, which offers subsidies for green energy.

It’s a balancing act, encouraging sustainable practices without alienating trading partners.

Steel and Cement

These industries are CBAM’s immediate targets because they are among the most polluting globally. Producing steel and cement requires massive amounts of energy, which often comes from fossil fuels. Companies in these sectors are scrambling to adopt cleaner technologies like electric arc furnaces and carbon capture systems to align with EU standards.

Aluminum

The aluminum sector is heavily affected due to its energy-intensive production process. Aluminum manufacturers, especially those relying on coal-powered electricity, are reevaluating their energy sources. Many are turning to hydropower or solar energy to reduce their carbon intensity.

Fertilizers

Fertilizer production relies heavily on natural gas, making it a carbon-heavy industry. Companies exporting to the EU are now exploring ways to decarbonize their production processes, including the use of renewable energy sources and innovative technologies like ammonia-based alternatives.

Electricity and Energy

Exporters of coal-based electricity and fossil fuels are on CBAM’s radar. These industries are being forced to pivot toward renewable energy to maintain market access in the EU. Wind, solar, and hydropower are becoming essential investments for countries heavily reliant on energy exports.

Idrogeno

Hydrogen is emerging as a key player in the clean energy transition. However, CBAM aims to distinguish between “grey hydrogen” (produced with fossil fuels) and “green hydrogen” (produced using renewable energy). Exporters are now under pressure to transition to greener methods to align with EU standards.

1. For CBAM:

   • Data Transparency: Exporters must accurately report the carbon intensity of their goods. Without standardized global reporting, this is easier said than done.
   • Political Pushback: Many countries view CBAM as disguised protectionism, which could spark trade disputes at the WTO.

   For Carbon Footprints:

   • Complex Supply Chains: Tracking emissions across every supplier and product lifecycle remains a massive challenge, especially for global businesses.

1. Invest in Clean Tech: Whether it’s shifting to renewable energy or adopting circular production models, the time to act is now.
2. Audit Your Supply Chain: Tools like blockchain can help track emissions and ensure compliance with CBAM.
3. Engage with Policymakers: By joining industry groups, businesses can help shape regulations in ways that are both effective and fair.

CBAM and carbon footprints are more than just buzzwords—they’re tools driving a global shift toward sustainability. By understanding and adapting to these changes, businesses can turn compliance into a competitive edge.

As the world edges closer to 2025, when CBAM reporting requirements kick in, one thing is clear: the rules of the game are changing. Whether you’re a small business owner or a multinational corporation, the question isn’t if you’ll adapt, but how quickly.

Want to stay up-to-date on CBAM and the latest developments? Check out our Risorse page for current information.

For official information about CBAM, refer to the EU’s website.