CBAM Guidebook for Hong Kong-funded Manufacturing Enterprises 1
1 Table of Contents Forewords....................................................................................................... 3 Chapter 1: Introduction ................................................................................. 7 1.1. Purposes of this Guidebook: Providing a Practical and Actionable Roadmap .......................................................................................... 7 1.2. How this Guidebook was Compiled ................................................... 8 1.3. Target Audience of this Guidebook .................................................... 8 1.4. How You Should Read this Guidebook .............................................. 8 Chapter 2: Understanding EU CBAM ......................................................... 10 2.1. Executive Summary ......................................................................... 10 2.2. Key Components of CBAM .............................................................. 10 2.3. Common Misunderstandings about EU CBAM ................................ 24 Chapter 3: Cornerstones of Carbon Management .................................... 29 3.1. GHG Emissions: Defining Scope ..................................................... 30 3.2. Setting GHG Boundaries ................................................................. 31 3.3. Monitoring, Reporting and Verification ............................................. 33 3.4. Implementation Strategies for Manufacturers .................................. 36 Chapter 4: Building a Carbon Management System for CBAM Compliance in the Iron and Steel Sector ................................................... 37 Case Study 1: Company Alpha and Rick ................................................... 39 Case Study 2: Company Bull and Mary ..................................................... 55 Chapter 5: Building a Carbon Management System for CBAM Compliance in the Aluminium Sector ......................................................... 71 Case Study 3: Company Canton and Mora ............................................... 73 Chapter 6: Potential CBAM Scope Extension to Other Sectors – Organic Chemicals and Polymers ............................................................................ 88 6.1 Introduction: CBAM Evolution and Potential Scope Expansion ........ 88 6.2 Organic Chemicals and Polymers: Why They May Be Included in CBAM ............................................................................................... 90 6.3 Preparing for CBAM: Steps for Manufacturers and Exporters in AsiaPacific ............................................................................................... 93
2 Chapter 7: CBAM Formalities for Importers .............................................. 97 7.1. Registration ...................................................................................... 97 7.2. Reporting .......................................................................................... 99 7.3. Certificate Surrender ...................................................................... 102 7.4. Annual Reconciliation ..................................................................... 104 Chapter 8: CBAM Data and Digitalisation for Manufacturers and Exporters (Installation Operators) ............................................................ 106 8.1. Use of the EU Communication Template ........................................ 106 8.2. Installation Information (i.e., Tab A_InstData) ................................. 107 8.3. Sources and Emissions (i.e., Tab B_EmInst) .................................. 109 8.4. Energy and Emissions (i.e., Tab C_Emissions&Energy) ................ 111 8.5. Processes and Specific Embedded Emissions Calculation (i.e., Tab D_Processes) ................................................................................. 112 8.6. Purchased Precursors .................................................................... 113 8.7. Other Tabs ...................................................................................... 113 8.8. Digitalisation Solutions for SMEs .................................................... 114 Chapter 9: Guidebook Recap and Call to Action..................................... 116 List of CBAM-covered Goods and Greenhouse Gases .......................... 119 List of Abbreviations ................................................................................. 124 References.................................................................................................. 127 Acknowledgements ................................................................................... 129
EU CBAM Guidebook – Forewords 3 Forewords At this pivotal moment in the global industrial restructuring, carbon management has transformed from an optional choice to a mandatory requirement for businesses. The emergence of carbon trading markets across the Asia-Pacific, alongside international green investment trends, is profoundly reshaping the competitive landscape for manufacturing. With decades industrial development and innovation capabilities across the Asia-Pacific, Hong Kong manufacturers are positioned to lead this transformative wave. The Federation of Hong Kong Industries (FHKI) has played a leading role in enabling SMEs to navigate environmental challenges. Since 2015, we have organised the annual BOCHK Corporate Low-Carbon Environmental Leadership Awards, recognising enterprises with outstanding sustainability performance. The program’s steadily growing participation underscores the rising priority that industry now places on environmental issues and sustainable growth. In 2021, we established the Environmental, Social and Governance (ESG) Committee to further consolidate resources and strengthen industry engagement through seminars, workshops, and industry surveys, enhancing members’ understanding of carbon mitigation policies and strategies. Last year, through the Hong Kong Q-Mark Council, we launched the Hong Kong Q-Carbon Certification Scheme and Hong Kong Q-ESG Certification Scheme, providing professional accreditation services to assist SMEs in establishing robust carbon and ESG management systems. Hong Kong’s manufacturers have built a comprehensive supply chain centred on Mainland China and extending across ASEAN. In this context, carbon management serves as a strategic opportunity to enhance corporate competitiveness in global markets. As a leading international financial and professional services centre, Hong Kong possesses a distinctive advantage in connecting global capital markets with green finance, providing comprehensive support for the green transformation of manufacturing. Through the synergy of finance, technology, and manufacturing, Hong Kong is poised to become a regional hub for green economic development, driving carbon neutrality across the Asia-Pacific. We recognise that SMEs often face difficulties in understanding and complying with complex carbon regulations, particularly when engaging with diverse international markets and rules. The two volumes of Carbon Management Guidelines seek to bridge that gap. By integrating international standards, CBAM regulations of EU, and the practical needs of Hong Kong manufacturers, these guides unpack complex requirements into clear, actionable steps,
EU CBAM Guidebook – Forewords 4 supplemented with case studies and industry insights. The guidelines provide SMEs with the knowledge and tools required to transition seamlessly to lowcarbon operations, while maintaining operational efficiency and market competitiveness. We firmly believe that, in the context of the regional green transformation, establishing scientific and systematic carbon management practices early will gain a strategic advantage, reinforcing Hong Kong manufacturing’s position in the global value chains. FHKI remains steadfast in our commitment to walk alongside with industry, guiding manufacturers to navigate the challenges and capitalise on the opportunities of green transformation. Through these two Carbon Management Guidelines, we deliver decisive, actionable roadmap to Hong Kong manufacturers to not merely adapt, but thrive in the carbon-neutral era— powering forward our national carbon peaking and carbon neutrality ambitions, and driving transformative progress in global sustainable development. Anthony Lam FHKI Chairman October 2025
EU CBAM Guidebook – Forewords 5 In the face of escalating climatic challenges, Environmental, Social and Governance (ESG) issues are garnering unprecedented attention. Regulatory pressure on ESG is accelerating worldwide, particularly with the European Union’s (EU) recent implementation of the Carbon Border Adjustment Mechanism (CBAM) and the imposition of carbon tariffs. As a highly open and export-oriented economy, Hong Kong manufacturers will inevitably face carbon regulatory challenges, implying that carbon management must become an integral part of corporate decision-making and daily operations for SMEs. The Federation of Hong Kong Industries (FHKI) established the ESG Committee in 2021, dedicated to promoting industrial participation in achieving Hong Kong’s goal of carbon neutrality by 2050. Through capacity building, knowledge exchange and ESG talent development, the Committee supports the industry sector in implementing effective ESG management. To strengthen the carbon management capabilities across the industry, and with the funding support from the Trade and Industry Department’s Trade and Industrial Organisation Support Fund (TSF), we commissioned the Institute of Climate and Carbon Neutrality at the University of Hong Kong to launch the Project, “Facilitating ESG compliance in supply chain management for Hong Konginvested manufacturing enterprises (HKMEs)”. The Project includes hosting the APAC ESG Summit for SMEs, compiling two Carbon Management Guidelines, and developing an online carbon management platform to help businesses take practical actions in response to increasingly stringent regulatory requirements. The two Carbon Management Guidelines are designed specifically for Hong Kong-funded manufacturing enterprises with production lines and supply chains operating across the Asia-Pacific region. Targeting the decision-makers, operational departments and green professionals, the Guidelines emphasise operability and practical application, providing the industry with step-by-step guidance. The Carbon Management Guidelines for Carbon Neutrality and Sustainable Development Targets of Hong Kong and Mainland China (“General Carbon Management Guidebook”) focus on internal corporate management, introducing international standards and systems, and detailing how to establish and optimise carbon management systems, accurately capture carbon data, and implement emission reduction actions. The Carbon Management Guidelines for EU Carbon Border Adjustment Mechanism (CBAM) Compliance (“EU CBAM Guidebook”), on the other hand, focuses on analysing compliance and practices for the two major CBAM in-scope industries, iron and steel, and aluminium, addressing emissions calculation, data collection, reporting, and verification processes, illustrated with case studies. These complementary guides —the former emphasising internal capacity building and long-term transformation, the latter providing specialised analysis and strategies for CBAM—offer a systematic blueprint and action plan for the Hong Kong
EU CBAM Guidebook – Forewords 6 manufacturers to establish comprehensive ESG management systems under the increasingly stringent international environmental requirements. While tightening international carbon management trends present significant challenges for the manufacturing industry, early preparation for relevant regulations can transform these challenges into a competitive advantage. With these two Carbon Management Guidelines, FHKI aims to heighten industry vigilance toward international carbon regulations, empower enterprises to build robust carbon management systems ahead of competitors, transform regulatory challenges into strategic advantages and forge greener, more resilient supply chains—ultimately reinforcing Hong Kong manufacturing’s competitive edge in global markets. Clara Chan Executive Deputy Chairman, FHKI Chairman, Steering Committee — Facilitating ESG Compliance in Supply Chain Management for HKMEs Jude Chow Executive Deputy Chairman, FHKI Chairman, FHKI ESG Committee October 2025
EU CBAM Guidebook – Chapter 1: Introduction 7 Chapter 1: Introduction 1.1. Purposes of this Guidebook: Providing a Practical and Actionable Roadmap As the world accelerates its transition towards a low-carbon economy, regulatory mechanisms such as the European Union’s Carbon Border Adjustment Mechanism (CBAM) are reshaping global trade dynamics. CBAM serves as a tool to prevent carbon leakage by imposing a carbon price on imported goods equivalent to the cost borne by EU producers under the Emissions Trading System (ETS). This policy has significant implications for international supply chains, particularly for economies with high trade exposure to the EU. Companies with carbon-intensive products face increased compliance costs, which may require them to either adopt greener production methods. For Hong Kong Manufacturing Enterprises (HKMEs), especially small and medium-sized enterprises (SMEs), this guidebook serves as a practical resource to navigate CBAM requirements, offering insights, step-by-step guidance, and strategies to ensure a smooth transition into this new regulatory landscape. The guidebook is designed to achieve the following objectives: • Support HKMEs in EU CBAM Compliance: The guidebook provides practical guidance to assist HKMEs in meeting the EU CBAM requirements. It addresses the necessary steps for compliance, such as calculating embedded carbon emissions, collecting accurate data, and adhering to reporting and verification standards. This will ensure HKMEs can continue exporting to the EU without disruption. • Facilitate Carbon Management: Beyond compliance, the guidebook encourages HKMEs to establish or enhance their carbon management systems. These systems will enable companies to monitor, report, and reduce emissions effectively, aligning with global expectations for sustainable practices, and ultimately gaining a competitive edge by offering products with reduced carbon intensity. • Contribute to Carbon Neutrality and Sustainable Development: By implementing the strategies outlined in this guidebook, HKMEs can contribute to broader carbon neutrality goals in Hong Kong, Mainland China, and the Asia-Pacific region. This aligns with international climate commitments, such as the Paris Agreement, and positions HKMEs as leaders in sustainable manufacturing.
EU CBAM Guidebook – Chapter 1: Introduction 8 1.2. How this Guidebook was Compiled This guidebook was developed through a comprehensive approach combining literature review on EU CBAM policies with conference calls with European Commission representatives. We conducted deep-dive interviews and site visits with representative Hong Kong enterprises in Iron and Steel, Aluminium, and Polymers sectors to understand their baseline capabilities and identify technical gaps, gathering feedback through meetings with diverse manufacturing companies and stakeholders from industry associations and academia. The case studies in this guidebook present fictional names but incorporate real examples from our interviews, accurately reflecting the challenges and opportunities facing CBAM in-scope enterprises. 1.3. Target Audience of this Guidebook The primary audience for this guidebook includes: • HKMEs in CBAM-In-Scope Sectors: Companies operating in sectors currently covered by CBAM, such as Iron and Steel and Aluminium, will find this guidebook essential for compliance and operational adjustments. • HKMEs in Other Manufacturing Sectors: Enterprises in sectors expected to be included in the CBAM scope (e.g., Polymers and Organic Chemicals by 2026) should begin preparing now. Additionally, manufacturers indirectly impacted through supply chain demands or customer requirements will benefit from this guide. The guidebook is also relevant to supply chain partners, industry associations, and stakeholders looking to understand how CBAM affects the manufacturing landscape and the broader implications for global trade. 1.4. How You Should Read this Guidebook This comprehensive guidebook is structured to provide actionable insights and detailed guidance across its chapters. Below is an outline of its contents against the targeted audiences:
EU CBAM Guidebook – Chapter 1: Introduction 9 Strategy: Top Management Operation: Production, Supply Chain, R&D, IT Expertise: Carbon / Energy / EHS / ESG Specialist(s) Chapter 2: Understanding EU CBAM: Explains the CBAM framework, its objectives, and its relevance to HKMEs. This chapter also addresses common misconceptions and offers an FAQ section for clarity. Read at least Section 2.3 so that you have a general idea of CBAM and its implications. Read at least Section 2.3 so that you have a general idea of CBAM and its implications. Read all and be the champion within your organization. Chapter 3: Cornerstones of Carbon Management: Provides foundational knowledge about carbon emissions, global standards, and strategies for data collection and setting reduction goals. It emphasises the practical measures HKMEs can take to align with CBAM requirements. Skimming this chapter is suggested. Skimming this chapter is suggested. Chapters 4–6: Step-by-step Guidance and Case Study: Delve into sector-specific step-bystep guidance for industries such as Iron and Steel, Aluminium, with remarks on Organic Chemicals and Polymers which would likely be the next step extension of the CBAM scope. These chapters include best practices for data management, embedded emissions calculations, and compliance strategies. Skimming at least one of the case studies is suggested. Read at least one of the case studies. Case 1 addresses Bubble Approach and supply chain collaboration, Case 2 addresses Mass Balance Approach and Case 3 addresses PFC emissions and Allocation issue Chapter 7: CBAM Formalities and Data Points: Entail the data points and data requirements for CBAM formalities as well as the CBAM communication between importers and exporters. Quickly skimming Section 7.2 can be helpful to understand what CBAM means in practice. Supply Chain team should read this chapter. Production team and IT team may wish to read Section 7.2. Chapter 8: Lightweight Digital Solutions for Carbon Management in Manufacturing SMEs: Highlights the use of lightweight / low-cost digital tools to streamline carbon management processes and prepare for CBAM compliance. Skimming Section 8.3 is suggested IT team and Supply Chain team should read this Chapter
EU CBAM Guidebook – Chapter 2: Understanding EU CBAM 10 Chapter 2: Understanding EU CBAM 2.1. Executive Summary The European Union’s Carbon Border Adjustment Mechanism (CBAM) is a regulatory framework designed to address carbon leakage and support the EU’s ambitious climate goals. By applying a carbon price to certain highemission imports, CBAM seeks to encourage the adoption of sustainable production practices globally while aligning with the EU’s climate goals. For Hong Kong Manufacturing Enterprises (HKMEs), understanding CBAM is crucial to navigating its implications and preparing for its operational requirements. For importers, traders and manufacturers, CBAM introduces specific compliance requirements, such as emissions data reporting and verification. Chapter 2 outlines these obligations, helping HKMEs and other stakeholders prepare for the operational demands of CBAM. By focusing on accurate data collection and carbon accounting practices, businesses can ensure compliance and mitigate potential risks. Importantly, this chapter frames CBAM not simply as a regulatory challenge but as a driver for broader industry transformation. While the mechanism reflects the EU’s approach to addressing carbon leakage, it also signals a global trend toward more stringent environmental standards. For Hong Kong, CBAM provides an impetus for strengthening carbon management capabilities, aligning with regional sustainability goals, and demonstrating leadership in the transition to low-carbon production. This chapter aims to equip HKMEs with the knowledge to engage with CBAM effectively, focusing on its operational aspects while considering the broader implications for Hong Kong’s economic and environmental priorities. For readers seeking clarifications on the EU CBAM, Section 2.3 addresses common misunderstandings about the EU Carbon Border Adjustment Mechanism (CBAM) in a practical way. 2.2. Key Components of CBAM The EU CBAM is a landmark policy developed to address carbon leakage and support the EU’s climate ambitions by ensuring that imported goods reflect the carbon costs applied to domestic production under the EU Emissions Trading System (ETS). This section provides an overview of the key components of
EU CBAM Guidebook – Chapter 2: Understanding EU CBAM 11 CBAM and its phased implementation timeline, as well as the potential future expansion to additional sectors such as Polymers and Organic Chemicals. The CBAM framework is structured around several core elements that define its scope, requirements, and operational mechanisms: A. What: Scope of CBAM CBAM initially applies to specific carbon-intensive sectors, including Iron and Steel, Aluminium, Cement, Fertilisers, Electricity, and Hydrogen. These industries were selected based on their high carbon intensity and significant contribution to global emissions. Please note that the specific scope of the EU CBAM is defined using CN (Combined Nomenclature) codes, which are an EU-specific extension of the globally used Harmonised System (HS) codes. The first six digits of the CN code align with the HS classification, while the additional two digits provide greater specificity for EU purposes. Goods falling under CBAM's scope can be identified in Annex I to the CBAM Regulation, which lists the relevant CN codes. Importers should ensure that their products are classified correctly using these codes to determine whether they fall within the CBAM framework. The EU CBAM focuses on greenhouse gases (GHGs) directly associated with the production processes of in-scope goods. The primary GHG covered under CBAM is carbon dioxide (CO₂), which is the most significant contributor to emissions in the targeted sectors. However, depending on the production processes and products, other GHGs such as perfluorocarbons (PFCs) and nitrous oxide (N2O) should also fall within the scope. Below is an overview of the CBAM sectors and examples of the products against their CN codes (the first 4 or 6 digits) and the GHGs. Please refer to Annex I to the CBAM Regulation for details (also as appendix of this Guidebook). • Iron and Steel (CO₂) o 7201: Pig iron in primary forms o 7207: Semi-finished products of iron or non-alloy steel (e.g., billets, slabs, blooms) o 7308: Structures (excluding prefabricated buildings of heading 9406) and parts of structures (for example, bridges and bridge-sections, lock- gates, towers, lattice masts, roofs, roofing frameworks, doors and windows and their frames and thresholds for doors, shutters, balustrades, pillars and columns), of iron or steel; plates, rods, angles, shapes, sections, tubes and the like, prepared for use in structures, of iron or stee
EU CBAM Guidebook – Chapter 2: Understanding EU CBAM 12 o 7318: Screws, bolts, nuts, coach screws, screw hooks, rivets, cotters, cotter pins, washers (including spring washers) and similar articles, of iron or steel o 7326: Other articles of iron or steel • Aluminium (CO₂ and PFCs) o 7601: Unwrought aluminium (e.g., ingots, slabs). o 7606: Aluminium plates, sheets, and strips. o 7610: Aluminium structures (excluding prefabricated buildings of heading 9406) and parts of structures (for example, bridges and bridgesections, towers, lattice masts, roofs, roofing frameworks, doors and windows and their frames and thresholds for doors, balustrades, pillars and columns); aluminium plates, rods, profiles, tubes and the like, prepared for use in structures o 7616: Other articles of aluminium • Cement (CO₂) o 2523 10: Cement clinkers o 2523 29: Other Portland cement o 2523 90: Other hydraulic cements • Fertilisers (CO₂ and N2O) o 3102: Mineral or chemical fertilisers, nitrogenous o 3105: Mineral or chemical fertilisers containing two or three of the fertilising elements nitrogen, phosphorus and potassium; other fertilisers; except: 3105 60 00 o 2804 10: Hydrogen • Ammonia (CO₂) o 2814: Ammonia, anhydrous or in aqueous solution. • Hydrogen (CO₂) o 2814: Ammonia, anhydrous or in aqueous solution. • Electricity (CO₂) o 2716: Electrical energy The mechanism may expand to cover additional sectors, notably Polymers and Organic Chemicals, in the future. The European Commission shall present a report to the European Parliament and to the Council including an assessment on the possibility of the scope extension.
EU CBAM Guidebook – Chapter 2: Understanding EU CBAM 13 B. What: Emission Sources under CBAM Under the EU CBAM framework, emission sources are categorised with a specific focus on the trade-related embedded emissions of imported goods, which differ from broader carbon management standards like ISO 14064-1. Below is a detailed description of the emission sources under CBAM: 1. Direct Emissions Direct emissions refer to greenhouse gas (GHG) emissions that are generated during the production processes of CBAM-covered goods. These emissions sources include: • On-Site Production Processes: Emissions produced directly at the installation during the manufacturing of goods, such as emissions from combustion and other processes for production. • Heating and Cooling Production: Emissions from the generation of heating and cooling used in the production process, regardless of whether the heating or cooling is generated on-site or off-site. That said, if heating or cooling is produced outside the installation but is used in the production process, the resulting emissions are still counted as direct emissions. The common emission sources in question are imports of heat flows and waste gases, the category of which differs from that under 14064-1 or GHG Protocol (where imports of heat flows and waste gases are considered sources for indirect emissions). 2. Indirect Emissions Indirect emissions are those associated with the consumption of electricity during the production of CBAM goods. The calculation of indirect emissions depends on the quantity of electricity used, the country of origin of the electricity, the generation source, and the associated emission factors. 3. Embedded Emissions in Precursor Materials In addition to the direct and indirect emissions from the production process, CBAM also considers the embedded direct (and indirect emissions if applicable) of relevant precursor materials used in manufacturing. Note: • During the transitional phase (until 31 December 2025), both direct and indirect emissions should be reported for all goods under CBAM. • From 1 January 2026, while direct emissions should be declared for all CBAM-covered goods, the requirement to declare indirect emissions for certain sectors remains uncertain as of March 2025. Stakeholders
EU CBAM Guidebook – Chapter 2: Understanding EU CBAM 14 should stay informed about potential revisions to indirect emissions reporting requirements. • It is suggested to keep track of the latest requirements. C. Who: Parties Involved in CBAM and Their Obligations The EU CBAM involves multiple parties, each with specific roles and obligations to ensure the system operates effectively. Below is a detailed breakdown of the key parties involved in CBAM (other than the authorities) and their respective obligations: Importers of In-Scope Products • Who They Are: All importers of CBAM-covered goods should register as authorised CBAM declarants in the CBAM registry, established and maintained by the European Commission. Registration is mandatory to legally import CBAM-covered goods into the EU. Please note that companies established outside the EU (such as in Hong Kong) may act as importers in the EU and are subject to the same CBAM obligations as companies established within the EU. • Obligations: 1. Registration: Should register as an authorised CBAM declarant in the CBAM registry maintained by the European Commission to legally import CBAM-covered goods. 2. Monitoring and Reporting: Submit quarterly reports that entails the volume of imported goods, the embedded emissions of CO₂ / GHGs in these goods, based on emissions generated during their production, and whether any carbon price was paid for these emissions in the country of origin. This reporting obligation applies during the transitional phase of CBAM (from 1 October, 2023, to December 31, 2025) when no certificates are required. During this phase, the reporting obligations are intended to familiarise importers with the system. 3. CBAM Certificate Purchases: Starting from 1 February 2027, importers will need to purchase and surrender CBAM certificates annually to cover the embedded emissions of their imported goods in the previous calendar year. The price of CBAM certificates will be based on the average auction price of EU ETS allowances during the relevant period, ensuring alignment with the EU’s carbon pricing system. Adjustments will be made for any carbon price paid in the
EU CBAM Guidebook – Chapter 2: Understanding EU CBAM 15 country of origin, provided sufficient evidence is submitted and validated by the competent authorities. 4. Compliance Obligations: By 30 September each year, importers should submit an annual CBAM declaration to the competent authority in their Member State and surrender the required number of CBAM certificates to cover the verified embedded emissions of the goods imported during the previous calendar year. 5. Record-Keeping: Maintain records related to imports (e.g., data on imported goods, emissions calculations, and surrendered certificates) for at least four years for verification and auditing purposes. 6. Non-Compliance Consequences: Importers failing to meet obligations may face financial penalties for non-compliance, restrictions on imports or other trade-related consequences, potential obligations to surrender additional CBAM certificates or pay further penalties for underreporting embedded emissions. Exporters in Non-EU Countries • Who They Are: Exporters are companies, facilities, or operators located in non-EU countries that produce goods covered by CBAM (e.g., steel, cement, aluminium, fertilisers, hydrogen, or electricity) for export into the EU. • Obligations: 1. Provide Emissions Data: Exporters are expected to provide detailed and verifiable data on the embedded emissions of their products to the EU importer. If exporters fail to provide emissions data, the importer should rely on default values set by the regulation. These default values are typically based on the average carbon intensity of the product’s industry in the exporting country, which may be less favourable than actual emissions data. 2. Disclose Carbon Pricing: Exporters should document and communicate any carbon price paid in the country of origin, such as: carbon taxes or costs under an emissions trading system (ETS) or similar mechanisms. 3. Adopt Transparency: Exporters should ensure transparency in their production processes and emissions measurement to facilitate compliance for EU importers. Cooperation with verifiers and importers is essential to ensure accurate reporting and compliance with CBAM rules.
EU CBAM Guidebook – Chapter 2: Understanding EU CBAM 16 Verifiers (Independent Accredited Entities) • Who They Are: Verifiers are independent third-party entities accredited to verify the embedded emissions data provided by exporters and submitted by importers. According to Regulation (EU) 2023/956, verifiers should be accredited by EU-based accrediting bodies, as defined in Regulation (EC) No 765/2008. Only accrediting bodies within the EU are authorised to determine who can act as accredited verifiers under CBAM. Verifiers operating in non-EU countries (e.g., Asia-Pacific) should obtain accreditation from an EU-based accrediting body to perform CBAMrelated verification activities. • Obligations: 1. Verification of Emissions Data: Verifiers should assess and verify the accuracy of embedded emissions data provided by exporters or operators at the installation level, and ensure the verification complies with CBAM’s specific methodologies and standards, including those outlined in Annex VI of Regulation (EU) 2023/956. Please note that installation visits are mandatory for verification unless specific criteria for waiving the visit are met (e.g., if sufficient data is available remotely and the verifier determines no physical visit is necessary). 2. Reporting: Verifiers should issue verification reports to the operators of installations (not directly to importers). These reports document the verified embedded emissions and are then used by the importers to fulfil their CBAM obligations. Importers submit this verified data to the competent authorities as part of their quarterly and annual declarations. D. When: Timeline for Implementation of the CBAM The EU CBAM adopts a phased approach to its implementation, providing businesses with a structured timeline to adapt: Transitional Phase (1 October, 2023 – 31 December, 2025): • Quarterly Reporting Obligations: During this phase, importers of CBAM-covered goods are required to submit quarterly reports detailing the embedded greenhouse gas (GHG) emissions of their imports and any carbon prices paid in the country of origin. These reports should comply with the detailed reporting templates and methodologies outlined in Implementing Regulation (EU) 2023/1773, which specifies the rules for calculating embedded emissions and ensuring accuracy in reporting.
EU CBAM Guidebook – Chapter 2: Understanding EU CBAM 17 • No Financial Obligations: Importers are not required to purchase CBAM certificates during this phase. The focus is on collecting accurate emissions data, building capacity, and allowing businesses and regulators to familiarise themselves with the reporting requirements and methodologies. • Capacity Building and Fine-Tuning: This period is intended to allow for the refinement of the CBAM framework based on insights gained from the reporting data. It also provides an opportunity for stakeholders, including industries and enforcement authorities, to prepare for the full implementation phase. Full Implementation (Starting 1 January, 2026): • Introduction of Financial Obligations: From 2026 onward, importers will be required to purchase and surrender CBAM certificates to cover the embedded emissions of their imported goods. The number of certificates corresponds to the verified emissions associated with the production of the imported goods. • Alignment with EU ETS: The cost of CBAM certificates will reflect the prevailing carbon price under the EU Emissions Trading System (ETS), ensuring a level playing field between EU domestic producers and foreign suppliers. This prevents carbon leakage by internalising the cost of carbon emissions for imports, incentivising cleaner production processes globally. • Verification and Compliance: Importers will need to ensure that the reported embedded emissions are verified by accredited entities, as stipulated in Regulation (EU) 2023/956. Non-compliance with reporting or certificate purchase requirements could result in penalties. Future Sectoral Expansion and the Climate Club Concept (2026 and Beyond): • Planned Expansion to New Sectors: The EU plans to expand CBAM coverage to include additional sectors such as polymers and organic chemicals. These industries are integral to global supply chains and are particularly significant for exportdependent economies. For non-EU producers, the inclusion of these
EU CBAM Guidebook – Chapter 2: Understanding EU CBAM 18 sectors will require further adjustments to meet the CBAM’s reporting and compliance requirements, which could create additional administrative burdens and costs. • Emerging "Climate Club" Dynamics: The CBAM framework reflects the EU’s ambition to set a global standard for integrating carbon pricing into trade policies. By aligning the cost of CBAM certificates with the EU Emissions Trading System (ETS), the mechanism creates a de facto carbon pricing system for imports. The EU has signalled its openness to engage with trading partners on carbon pricing equivalence or mutual recognition mechanisms, framing this as part of a broader effort to encourage international cooperation on climate goals. However, this so-called "climate club" approach has sparked debate. Critics argue that CBAM could unintentionally penalise economies without comparable carbon pricing systems, particularly developing countries or regions with differing climate policies. While the EU considers CBAM a tool to foster global decarbonisation, concerns persist that it may impose additional barriers to trade and undermine principles of fair competition. E. How: CBAM Administration The CBAM framework imposes multiple obligations on importers (and exporters via the importers) to ensure compliance with its requirements. These obligations include registration, quarterly reporting, CBAM certificates, and annual filing and reconciliation. Each obligation involves specific actions and oversight from the European Commission, the CBAM registry, national authorities, and accredited verifiers. Below is a breakdown of importer obligations and the corresponding roles of these governing bodies: Registration of Importers National Authorities: • Review and approve importer registration applications. • Maintain a list of authorised importers who are entitled to participate in the CBAM system. CBAM Registry: • Serve as the digital infrastructure where registered importers are recorded and managed. European Commission: • Provide overarching guidance on registration procedures to ensure harmonisation across Member States.
EU CBAM Guidebook – Chapter 2: Understanding EU CBAM 19 Quarterly Reporting on Embedded Emissions National Authorities: • Receive and review quarterly reports submitted by importers. • Validate the accuracy of embedded emissions data and the reporting templates used by importers. Accredited Verifiers: • Independently verify the emissions data and compliance with calculation methodologies. • Issue verification statements confirming the accuracy of the reported data. CBAM Registry: • Serve as the platform where importers upload their quarterly reports and where national authorities can access these reports for validation. European Commission: • Provide standardised templates and guidelines for quarterly reporting to ensure consistency across all Member States. • Monitor aggregate data for compliance trends and evaluate the effectiveness of the CBAM framework. Purchasing and Holding CBAM Certificates National Authorities: • Issue CBAM certificates to importers within their jurisdiction. • Monitor the number of certificates purchased and ensure they align with the emissions data provided in quarterly reports. CBAM Registry: • Track the issuance, purchase, and holding of CBAM certificates by registered importers in a centralised system. • Provide transparency and facilitate monitoring by national authorities. European Commission: • Set the price of CBAM certificates, which is calculated based on the average auction price of EU ETS allowances over a predefined period. • Oversee the functioning of the CBAM registry to ensure uniformity and transparency across Member States.
EU CBAM Guidebook – Chapter 2: Understanding EU CBAM 20 Annual Filing and Reconciliation National Authorities: • Review and validate the annual declarations submitted by importers. • Ensure that the number of surrendered CBAM certificates matches the verified emissions for the year. • Take enforcement actions in cases of discrepancies or noncompliance. CBAM Registry: • Record the submission of annual declarations and the surrendering of CBAM certificates by importers. • Track certificate balances and ensure proper accounting for unused certificates. European Commission: • Provide guidance to ensure consistency in annual filing and reconciliation processes across Member States. • Monitor Member States’ enforcement of CBAM obligations to ensure compliance with EU regulations. Verification of Embedded Emissions Accredited Verifiers: • Perform independent assessments of emissions data and ensure compliance with prescribed methodologies. • Issue verification statements confirming the reliability of the reported emissions. National Authorities: • Maintain oversight over the accreditation of verifiers and ensure their impartiality and competence. European Commission: • Define the rules and standards for verifying emissions and accredit verifiers to ensure consistency across the EU.
EU CBAM Guidebook – Chapter 2: Understanding EU CBAM 21 Penalties for Non-Compliance The CBAM framework includes strict enforcement measures to ensure compliance with its requirements. Penalties apply to importers who fail to meet their obligations, as outlined below: Failure to Surrender CBAM Certificates: Starting in 2026, importers should surrender the required number of CBAM certificates annually to cover the embedded emissions of their imports. If they fail to do so, they will incur a financial penalty equivalent to the EU ETS excess emissions penalty for that year. This amount may be significantly higher than the market price of CBAM certificates, ensuring that non-compliance is costlier than compliance. Inaccurate or False Reporting: Importers that submit inaccurate or falsified emissions data or fail to meet the verification requirements may face administrative fines. Repeated violations could result in additional enforcement measures, such as suspension of import rights for CBAM-covered goods. Fraudulent Activity and Deliberate Evasion: Fraudulent activities, such as misreporting embedded emissions or attempting to circumvent CBAM obligations, are subject to strict penalties. Member States are required to impose sanctions that are "effective, proportionate, and dissuasive," which may include criminal penalties under national laws. Strategic Implications for Importers and Exporters The strict penalty regime under CBAM will have a profound impact on importers’ strategies, decision-making, and contractual arrangements with exporters. Importers face significant financial and operational risks if their CBAM obligations are not properly fulfilled, driving them to adopt more cautious and stringent measures when dealing with their supply chains. This includes: • Increased Scrutiny on Exporters: Importers will require exporters to provide detailed, verified, and reliable data on the embedded emissions of their goods, as well as information on any carbon pricing paid in the country of origin. A failure by exporters to provide accurate and verified information could expose importers to penalties for non-compliance, pushing them to seek alternative suppliers or renegotiate contracts to include clauses ensuring full data transparency and accountability.
EU CBAM Guidebook – Chapter 2: Understanding EU CBAM 22 • Contractual Adjustments: Importers are likely to include specific contractual provisions requiring exporters to provide emissions data verified by accredited third-party entities. Contracts may also include indemnity clauses to hold exporters accountable for any penalties or additional costs incurred because of inaccurate or incomplete emissions data. • Supply Chain Reconfiguration: The risk of penalties may lead importers to reconfigure their supply chains, favouring exporters from jurisdictions with robust carbon accounting systems or recognised carbon pricing mechanisms. Exporters without adequate emissions tracking may find themselves at a competitive disadvantage in the EU market. For exporters, this highlights the importance of aligning with CBAM requirements by ensuring that all emissions data and documents are accurate, transparent, and verified by accredited entities. Providing reliable and verifiable data will not only strengthen relationships with importers but also help exporters maintain their competitive position in the EU market. Failure to do so could lead to strained relationships with key trading partners, lost business opportunities, or exclusion from the EU market altogether. F. “Simplifying” CBAM: 2025 Update On 10 September 2025, the European Parliament approved a package of amendments aimed at simplifying the Carbon Border Adjustment Mechanism (CBAM) rules. While these changes are designed to reduce the administrative burden on EU importers, non-EU manufacturers must understand the practical implications for their own operations. Key Changes at a Glance The following amendments have been approved by the Parliament and await final approval from the European Council. 1. New Threshold: A Critical Perspective for Manufacturers This is the most significant change, but its impact on manufacturers requires careful analysis. • The New Rule: A minimum import threshold of 50 tonnes per year will be introduced for each EU importer. This new threshold exempts around 90% of importers, predominantly SMEs and individuals, from the reporting duties.
EU CBAM Guidebook – Chapter 2: Understanding EU CBAM 23 • The Manufacturer's Reality: A manufacturer is only exempt from CBAM data requirements if ALL of its EU customers/importers individually fall below this 50-tonne threshold. For most exporting manufacturers, this is highly unlikely. Companies in Asia Pacific will more likely be required to provide the necessary carbon emissions data for your products. • Why 99% of Emissions Are Still Covered: The EU has stated that this change still ensures 99% of imported carbon emissions are covered. This is because the mechanism targets the total volume of goods, which is dominated by larger importers or aggregated across many smaller ones sourcing from the same manufacturers. The core message for manufacturers is that your products will more likely contribute to a reportable volume of imports. 2. Revised Timelines and Deadlines The deadlines for reporting and purchasing certificates have been adjusted, giving importers more flexibility. • Annual Reporting and CBAM Certificate Surrender Deadline: The deadline for submitting the annual CBAM declaration and surrendering the CBAM certificate is extended from 31 May to 30 September of the year following the import year (e.g., the report for 2026 imports is due by 30 September, 2027). • CBAM Certificate Purchases: The first purchase of CBAM certificates is postponed from January 2026 to February 2027, covering emissions from goods imported during 2026. 3. Increased Flexibility for Importers New provisions will simplify financial and administrative responsibilities for EU importers. • Carbon Cost Deduction: Importers can now deduct carbon costs paid in any third country, not just the country of origin. • Delegation of Reporting: Authorised CBAM declarants can formally delegate their reporting obligations to a CBAM representative. 4. Streamlined Administrative Processes The approved text simplifies several rules for importers who remain under the mechanism, including the authorisation process, emissions calculation methodologies, and verification rules.
EU CBAM Guidebook – Chapter 2: Understanding EU CBAM 24 Conclusion: A Relief for Importers, A Call to Action for Manufacturers While these updates provide significant administrative relief for EU importers, particularly SMEs, they do not change the fundamental requirements for nonEU manufacturers. The responsibility to calculate, verify, and provide detailed emissions data for your products remains. It is highly probable that your business will still be impacted by CBAM through your supply chain. Therefore, the fundamental need to prepare for CBAM is unchanged. We strongly advise all enterprises to continue following the comprehensive steps outlined in this Guidebook to ensure full readiness for the definitive period starting in 2026. These amendments have been approved by the European Parliament but must still be formally approved by the European Council to become law. The changes will only enter into force three days after their publication in the Official Journal of the EU. We will continue to monitor these developments and provide further updates. 2.3. Common Misunderstandings about EU CBAM This section aims to help Hong Kong Manufacturing Enterprises (HKMEs) gain a clearer understanding of the EU Carbon Border Adjustment Mechanism (CBAM) by addressing common misconceptions in a practical format. By highlighting and correcting these misunderstandings, HKMEs can approach CBAM compliance with accurate information and avoid potential pitfalls or missteps. 1. CBAM Applies Only to Large-Scale Manufacturers? Many HKMEs mistakenly believe that CBAM only targets large-scale manufacturers. However, CBAM applies to all non-EU entities exporting inscope goods to the EU, irrespective of their size or production volume. The scope of CBAM is determined by the type of products and sectors covered, such as iron and steel, cement, aluminium, fertilisers, hydrogen, and electricity, and not the size of the exporting business. 2. CBAM Only Affects Certain Sectors? It is true that CBAM currently applies only to specific sectors—iron and steel, aluminium, cement, fertilisers, hydrogen, and electricity—that are at high risk of carbon leakage. However, the misconception lies in thinking this is static. CBAM was designed with the flexibility to expand to additional goods and sectors over time. While no definitive expansion has been confirmed yet, businesses should stay informed as the EU may broaden the scope to include other carbonintensive products, such as polymers or organic chemicals, after the transitional phase.
EU CBAM Guidebook – Chapter 2: Understanding EU CBAM 25 3. CBAM Covers Only Simple Products, Upmost Streams in the Supply Chain? A common misunderstanding is that CBAM applies exclusively to "simple products" or only to the utmost streams in the supply chain. In reality, CBAM covers both simple goods and complex goods, depending on the embedded emissions and production processes involved. • Simple Goods: Simple goods are products whose embedded emissions are based entirely on emissions from their own production processes. Input materials for simple goods are considered to have zero embedded emissions under the CBAM methodology. An example would be primary aluminium, where emissions are calculated solely for its production.* • Complex Goods: CBAM also applies to complex goods, which are products made using precursor materials that are themselves CBAM goods. For complex goods, the embedded emissions include not only those from their production but also the emissions from the relevant precursors used in the manufacturing process. For instance, in the cement sector, cement clinker, a precursor material, is included in the calculation of embedded emissions for Portland cement.* * Pursuant to Regulation (EU) 2023/956, ‘simple goods’ means goods produced in a production process requiring exclusively input materials (precursors)and fuels having zero embedded emissions whilst ‘complex goods’ means goods other than simple goods. The definition in this Guidebook is an interpretation based on the regulation definition for easier understanding. This means that CBAM does not merely focus on the "utmost streams" of the supply chain or the final product. Instead, it accounts for emissions across multiple stages of production, particularly where precursor materials falling under CBAM are involved. 4. Compliance is a One-Time Effort? A common misconception is that CBAM compliance is a one-time effort involving only a one-off annual audit. In reality, manufacturers will need to adopt a proactive and continuous approach to monitoring and maintaining carbonrelated data and records. CBAM compliance is not limited to periodic audits but requires day-to-day management of emissions data to ensure accuracy and readiness for reporting obligations. • Quarterly Reporting Requirements: During the transitional phase (2023–2025), importers are required to submit quarterly reports detailing the embedded emissions of their imported goods, calculated in alignment with CBAM methodologies. These reports should include
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