CBAM – carbon border adjustment mechanism for enterprises exporting to the EU

With the objective of becoming a carbon-neutral continent by 2050, new policies on carbon adjustment and the promotion of sustainable development in the EU market are becoming increasingly stringent. However, the issue of “carbon leakage” has a significant impact on the EU’s and global climate neutrality objectives. CBAM is an essential mechanism to ensure fairness in international trade between producers within and outside the EU, while encouraging other countries to improve environmental standards.

What is CBAM?

CBAM (Carbon Border Adjustment Mechanism) is a carbon border adjustment mechanism issued by the European Union (EU). CBAM applies to goods imported into the EU based on the amount of greenhouse gas emissions generated during the production of those goods. CBAM is an important pillar of the EU’s Fit for 55 policy package. This package aims to support the EU in achieving a 55% reduction in greenhouse gas emissions by 2030 (compared to 1990 levels) and progressing toward carbon neutrality by 2050.

What are the objectives of CBAM?

The primary objective of CBAM is to prevent the phenomenon of “carbon leakage”. This phenomenon occurs when enterprises relocate carbon-intensive production activities abroad to countries with climate policies less stringent than those of the EU, or when EU products are replaced by imports with higher carbon intensity. This phenomenon weakens the effectiveness of the EU’s emission reduction policies and leads to an increase in global emissions.

At the same time, CBAM aims to maintain the effectiveness of and protect the European Union Emissions Trading System (EU ETS). Producers within the EU are required to comply with the EU ETS and bear high carbon emission costs. Therefore, imported goods are required to bear an equivalent carbon cost to ensure fairness with EU enterprises that are already subject to strict emission regulations.

Scope of CBAM application in the initial phase

The CBAM policy is not limited to a narrow scope but extends to multiple goods and sectors, creating a comprehensive and coordinated adjustment framework to promote green, clean, and sustainable supply chains. The groups of enterprises within the CBAM scope include:

  • Importing enterprises: entities bearing direct legal responsibility to the EU, namely importers (or indirect customs representatives) established in the EU.
  • Exporting enterprises: enterprises exporting goods to the EU that fall within the CBAM scope, particularly small and medium-sized enterprises in third countries that bear indirect responsibility through the supply chain.

In the initial phase, six groups of goods with specific HS codes as required by the EU, which have high carbon emission intensity and a high risk of carbon leakage, are subject to CBAM, specifically:

  • Iron and steel
  • Cement
  • Aluminium
  • Fertilizers
  • Electricity
  • Hydrogen

Enterprises that are uncertain whether their HS codes fall under CBAM reporting requirements are advised to seek verification.

How does CBAM affect Vietnamese enterprises?

EU importing enterprises are required to declare emissions and pay CBAM costs based on those emission levels. Therefore, although Vietnamese enterprises do not directly pay CBAM fees, they are significantly affected through the following channels:

1. Requirements for product emission data from EU customers

Importers (EU customers) are the entities directly responsible for CBAM declarations and are required to obtain emission data for each product they import from Viet Nam (including direct and indirect emissions) in order to calculate costs. Consequently, increasingly stringent and detailed requirements are imposed by customers regarding transparency, calculation, monitoring, and accurate reporting of product carbon emission data in accordance with EU standards. Failure to provide data, or provision of inaccurate data, may cause EU customers difficulties in complying with CBAM. This represents the greatest challenge, as most Vietnamese enterprises currently lack systems for measuring and inventorying emissions at the product level.

2. Price adjustments and contract terms to offset CBAM costs

The cost of CBAM certificates represents an additional cost for EU importers. As a result, importing enterprises will renegotiate with Vietnamese suppliers to share this cost burden through the following measures:

  • Negotiation of purchase prices: EU customers may request price reductions equivalent to the CBAM costs payable, in order to offset CBAM expenses.
  • Changes to contract terms: inclusion of binding clauses regarding product carbon emission levels, requirements for “greener” certification, or prioritization of enterprises with lower carbon emissions in other countries. This may exert downward pressure on the selling prices of Vietnamese enterprises.

Why should Vietnamese exporting enterprises pay attention now?

1. Risk of order loss and supplier substitution

The EU is increasingly tightening emission standards and requirements for carbon data transparency under CBAM. From 2026 onward, the EU will begin collecting CBAM charges, increasing import costs. EU supply chains will prioritize suppliers with lower carbon emissions, requiring enterprises to demonstrate the emission levels of imported goods. If enterprises fail to meet requirements in a timely manner, EU customers may shift orders to better-prepared suppliers, particularly from competing countries such as Thailand, Malaysia, and China. Once the market has selected new compliant suppliers, opportunities for Vietnamese enterprises to re-enter may be limited, as the EU prioritizes long-term stability and compliance.

2. Opportunities to upgrade “green” capacity and maintain access to the EU market through early preparation

Early preparation for CBAM is not only a matter of regulatory compliance but also a strategic step that creates opportunities to enhance competitiveness and align with global “greening” trends:

  • Upgrading “green” capacity: emission measurement requires Vietnamese enterprises to review their entire production processes. This process helps identify points of energy inefficiency, thereby encouraging investment in high-efficiency technologies and renewable energy. This contributes to emission reduction and long-term operational cost reduction.
  • Enhancing environmentally responsible brand image: compliance and demonstration of social responsibility support the development of a “green” image, facilitating market expansion and increasing brand value in the international community.
  • Encouraging technological innovation: CBAM emission reduction requirements drive enterprises to invest in new technologies and innovative initiatives to optimize energy use, save materials, and improve product quality. This supports the development of cleaner products with improved competitiveness and contributes to long-term sustainable development.
  • Establishing a “green” competitive advantage: prioritization by the EU in long-term contract awards and access to more favorable pricing due to products with a low carbon footprint.
  • Maintaining and expanding the EU market: once international-standard carbon measurement and reporting systems are established, Vietnamese enterprises may become preferred suppliers. This not only strengthens their position in the EU but also facilitates expansion into other markets (such as the United States and Canada) that are moving toward similar mechanisms.

Conclusion

CBAM plays a central role in the EU’s strategy to reduce greenhouse gas emissions and promote the transition toward a globally sustainable production model. This policy affects not only enterprises within the EU but also creates opportunities and challenges for international enterprises, particularly Vietnamese enterprises, in the context of increasing international integration. Recognizing opportunities and preparing effectively for CBAM will support enterprises in adapting and leveraging competitive advantages in an increasingly green global environment.