New EU Carbon Adjustment Mechanism Increases Business Costs

The Carbon Adjustment Mechanism (CBAM) is a new EU instrument aimed at reducing net carbon emissions and promoting a ‘cleaner’ industry. Fully implemented from 2026, CBAM covers products with a high risk of carbon leakage: cement, iron, steel, aluminum, fertilizers, and electricity. This mechanism will operate in parallel with the European Emissions Trading System (ETS), which encourages energy-intensive companies to reduce emissions.

As noted in this week’s review by the Croatian Employers’ Association on economic developments by Sanja Ostroški, director of HUP Varaždin and HUP Association of Metal and Electrical Industries, and Hrvoje Stojić, chief economist of HUP, CBAM brings a range of administrative obligations and costs associated with the import of key materials. This also brings the risk of negative impacts on business, such as rising costs of key production materials like steel and aluminum, which will further complicate the operations and competitiveness of EU technology manufacturers, as well as higher import prices for raw materials and secondary goods, which include components covered by CBAM.

The minimum threshold for the application of CBAM of 150 euros creates a disproportionately heavy administrative burden for many companies, especially for products with very low embedded emissions whose core business is not directly related to goods covered by CBAM. Given that European technology manufacturers from the EU are forced to contribute significantly faster to climate neutrality with the introduction of CBAM than their competitors from third countries before the full implementation of the instrument, planned for 2026, the key goal should be to drastically reduce regulatory and administrative burdens.

Members of HUP from the technology industry propose that CBAM obligors be allowed unlimited use of default values throughout the entire transition period and after its completion, as research shows that only a small number of European technology companies manage to obtain actual data on the emissions of their suppliers.

They also propose a reduction in the frequency of reporting to a semi-annual basis instead of quarterly and an extension of the deadline for submitting reports to two months after the end of each reporting period. It is also important to increase the de minimis threshold from 150 euros, which is particularly burdensome for importers of products with low embedded emissions, in order to reduce the administrative burden for companies importing smaller quantities of these products and to reduce technical requirements.

A thorough assessment of readiness for the transition to full implementation of CBAM should also be conducted before the end of the transition period based on real data from importing companies and the economic and developmental challenges of individual EU member states to avoid disruptions in value chains.

As the Draghi report and numerous EU policy positions show, there are challenges of structural decarbonization for a large part of the industry based in the EU that must transition to net-zero emissions faster than many competitors from third countries. A faster transition to zero-emission technologies often requires very high, uncertain, and costly initial investments that may not immediately reflect market prices for green products. Therefore, targeted investment support through public bank guarantees and specific risk-sharing instruments that support the capital and operational expenditures of companies investing in new technologies is necessary, conclude HUP.