What is the Carbon Border Adjustment Mechanism and why does it matter?

The Carbon Border Adjustment Mechanism (CBAM) is a European Union instrument designed to ensure fair competition between EU production and imports of goods from countries where climate regulations are less strict. The mechanism reduces the risk of “carbon leakage” (i.e. the transfer of production to jurisdictions with lower emission requirements) and tightens reporting requirements for importers.

Since 1 October 2023, importers to the EU are required to report the carbon footprint of imported goods through a CBAM declaration. Importers of regulated goods into the EU must become CBAM declarants or have a representative (i.e. an intermediary) with CBAM status.

Ultimately, CBAM aims to make importers of certain goods pay fees to cover the difference between the emissions charges in the country of production and those under the EU Emissions Trading System (EU ETS).

What are the challenges for companies in implementing CBAM?

The goal is to ensure a level playing field for companies outside the EU and those operating in the EU and subject to relevant emissions regulations when it comes to climate policy compliance. As such, CBAM would be applicable to EU imports of many Ukrainian products, with conservative estimates suggesting that over 1,000 Ukrainian exporting companies and about 15% of Ukraine's total exports to the EU fall under CBAM. The regulation applies to key Ukrainian industries, including metallurgy, fertilisers, cement, electricity, and aluminium. Ferrous metallurgy is considered the most vulnerable to EU CBAM import regulations, accounting for the largest share of approximately USD3 billion in annual exports to CBAM countries.

List of goods subject to CBAM

Currently, CBAM primarily covers carbon-intensive basic commodities, including steel, cement, aluminium, fertilisers, electricity, and hydrogen.  As the Council of the EU notes, “non-EU products using a significant proportion of CBAM goods in their manufacture […] could contribute to an increase of emissions outside the EU and replace similar EU products that are subject to the emissions trading scheme.”

To address this issue, CBAM tariffs have been extended to include certain downstream products, namely approximately 180 additional lines covering:

selected iron and steel products, including sheet piling, railway materials and gas containers

fabricated metal products such as wire mesh, fencing, nails and furniture fittings

machinery and equipment, including engines, pumps, refrigeration equipment, industrial robots, cranes, lifts, agricultural and household appliances, electric motors and transformers

vehicles and related components

certain medical devices made of steel or aluminium

metal furniture and prefabricated buildings.

The Council has specified the list of products concerned, while the European Commission will receive a mandate to review and potentially expand this list on an annual basis.

Sustainable development and ESG

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Phased implementation of the CBAM

Reporting obligations

From 1 October 2023, companies importing carbon-intensive goods into the European Union have been required to provide quarterly reports on any imports subject to the CBAM, as well as the associated direct and indirect CO₂ emissions, and the relevant carbon taxes paid in the country of production.

Although there is currently no obligation to purchase CBAM certificates, the collection of actual emissions data has proven challenging due to a lack of information on emissions in third countries and the limited use of default values.

Mandatory registration

From 2026, imports of goods covered by the CBAM will only be permitted for companies registered as Authorised CBAM Declarants.

EU customs authorities will verify the importer’s registration status in EU and can refuse to release goods without a valid authorisation. Registration is a prerequisite for subsequent compliance with CBAM requirements.

CBAM certificate trading
In the final phase of implementing the CBAM, importers will have a wider range of obligations, including:
- purchasing a sufficient number of CBAM certificates to cover the CO₂ emissions associated with imported goods
- determining direct and indirect emissions for each good based on certified actual data or, in exceptional cases, the European Commission’s default values
- ensuring the independent verification of emissions data by an accredited verifier
- purchasing and surrendering the required number of certificates through the centralised CBAM registry
- submitting an annual CBAM declaration for the previous calendar year, with the first declaration due by 30 September 2027.
Failure to hold a sufficient number of certificates may result in financial penalties and the loss of Authorised CBAM Declarant status.

What are the benefits of implementing an integrated approach to CBAM?

Acquiring the necessary data to calculate your company’s carbon footprint
Compliance with the regulatory and financial requirements, as stipulated under EU legislation
Proactive development and implementation of a decarbonisation action plan

CBAM verification: where to start?

For companies operating in Ukraine that are subject to CBAM requirements, independent verification services for embedded emissions are provided by KPMG Cert GmbH, an accredited verification body within the KPMG network.

KPMG’s Sustainability and ESG team in Ukraine provides local support to clients, including:

assessing their readiness to comply with CBAM requirements

collecting and structuring the required data

calculating embedded emissions

preparing documentation for verification

coordinating interaction with KPMG Cert GmbH throughout the verification process.

How can KPMG in Ukraine help businesses to comply with EU CBAM?

The impact of CBAM on Ukraine’s business environment will be unavoidable for market participants covered by the framework. KPMG in Ukraine’s specialist can offer you the following services to address these changes:

Assessing CBAM coverage: determining which products in your supply chain are subject to the regulation
Estimating carbon footprints: data collection, methods of calculation, monitoring system development
Registration support: providing support in obtaining authorised CBAM declarant status
Reporting: filling out declarations, preparing supporting documentation, and submitting documentation to the competent authority
Financial impact analysis: analysing the acquisition costs for CBAM certificates and the impact on your company’s operating margin
Strategic decarbonisation solutions: planning measures to reduce your company’s carbon footprint and integrating such into your business strategy.