Dilema CBAM: Pay Fees or Develop Local Suppliers? Unveiling the Options for European Companies

The European Union's (EU) Carbon Border Adjustment Mechanism (CBAM), set to take effect in 2026, presents European companies that import raw materials from abroad with a crucial dilemma: pay CBAM fees for their indirect carbon emissions or invest in developing local suppliers within the EU. This article explores this dilemma, delving into each option with practical examples and concluding which path offers the most advantageous solution for companies.

Option 1: Pay CBAM Fees

Under this option, the company assumes responsibility for the carbon emissions generated during the production of imported raw materials. CBAM fees are calculated based on the amount of embedded carbon in each product, becoming a significant additional cost for the company.

Example: A furniture manufacturing company imports wood from a country with high carbon emissions. By paying CBAM fees, the company will have an increase in production costs, directly impacting the final price of the furniture.

Advantages:

• Immediate solution: The company does not need to engage in complex supply chain changes.

• Avoids upfront investments: Developing new local suppliers can be expensive and time-consuming.

Disadvantages:

• Significant cost increase: CBAM fees can represent a substantial financial impact for the company.

• Loss of competitiveness: Products with higher prices due to CBAM fees may lose competitiveness in the market.

• Market instability risk: CBAM fees may fluctuate, generating uncertainties for the company.

Option 2: Develop Local Suppliers

By investing in the development of local suppliers within the EU, the company internalizes the production of raw materials, significantly reducing indirect carbon emissions and, consequently, eliminating the need to pay CBAM fees.

Example: The same furniture manufacturing company decides to invest in local reforestation and the construction of a sustainable sawmill within the EU. By using locally sourced wood with a lower carbon footprint, the company eliminates CBAM fees and enhances its sustainable image.

Advantages:

• Long-term cost reduction: Eliminating CBAM fees generates significant savings over time.

• Increased competitiveness: Products with a lower carbon footprint are more attractive to consumers conscious of sustainability.

• Strengthening brand image: The company positions itself as a leader in sustainable practices.

• Greater control over the supply chain: The company guarantees the quality and sustainability of the raw materials.

Disadvantages:

• Initial investment: Developing new local suppliers can be a costly and time-consuming process.

• Supply chain management: The company assumes responsibility for the production and logistics of raw materials.

• Market risks: Changes in policies and regulations can affect the viability of local suppliers.

Conclusion: The Best Choice

The decision between paying CBAM fees or developing local suppliers depends on various factors specific to each company, such as:

• Industry: Companies in industries with high raw material consumption may have a greater impact from CBAM fees.

• Supply chain structure: Companies with complex and diversified supply chains may have more difficulty developing local suppliers.

• Risk profile: Companies with a lower risk appetite may prefer the immediate solution of paying CBAM fees.

In general, developing local suppliers within the EU offers more significant long-term benefits, such as cost reduction, increased competitiveness, and brand image strengthening. However, the final decision should be made based on a thorough analysis of the characteristics and needs of each company.

Additional Considerations:

• Combination of strategies: It is possible to combine both options, paying CBAM fees for some products and developing local suppliers for others.

• Government support: The EU and its member states offer support programs for companies investing in sustainable practices.

• Innovation and technology: The search for innovative solutions and low-carbon technologies can help reduce the carbon footprint.

• Seek CBAM-certified suppliers: Investigate suppliers outside the EU that are implementing sustainable practices and can offer CBAM certifications for their raw materials. This can help reduce the CBAM fees paid by the company.

• Transparency and communication: Be transparent with customers about the company's efforts to reduce its carbon footprint. Clear communication about CBAM fees and sustainability strategies can strengthen customer trust and loyalty.

• Engagement in the value chain: Encourage and support current suppliers, even outside the EU, to adopt more sustainable production practices. This can help reduce the overall carbon footprint of the supply chain.

A Path to Sustainability

CBAM presents a challenge but also an opportunity for European companies. By carefully analyzing the options, considering the specific needs of the business and adopting a long-term vision, companies can transform this dilemma into a catalyst for sustainability. Investing in sustainable practices and reducing the carbon footprint not only contributes to the environment but also strengthens the company's competitiveness and brand image in an increasingly sustainability-conscious global market.