The Carbon Border Adjustment Mechanism (CBAM) is a new mechanism being implemented for the first time globally, with Europe being the first region to initiate its application. As part of the EU's "Fit for 55" package, CBAM aims to reduce greenhouse gas emissions in the EU by at least 55% by 2030, which will significantly impact the exports of various countries.
The CBAM mechanism is divided into two phases. Starting from October 1, 2023, the transitional phase applies to products in six sectors: aluminum, cement, iron and steel, chemicals, electricity, and hydrogen. Vietnamese businesses exporting products in these categories will be required to provide information related to greenhouse gas emissions per unit of product.
Starting from 2026, the CBAM mechanism will officially be implemented, requiring the verification of emissions data and the payment of CBAM certificates for the embedded greenhouse gas emissions of goods imported into the EU.
Starting from 2026, the CBAM mechanism will officially be implemented, requiring the verification of emissions data and the payment of CBAM certificates for the embedded greenhouse gas emissions of goods imported into the EU. Accordingly, importers of goods into the EU will register with domestic regulatory authorities and purchase CBAM emission certificates if the emissions embedded in the imported goods exceed EU standards (the certificate price will be based on the weekly allowance price of the EU Emissions Trading Scheme).
EU importers will declare the emissions embedded in imported goods and submit the corresponding number of certificates each year. If importers can provide documentation proving that carbon costs have already been paid during the production of the goods, the corresponding emissions can be deducted.
By 2034, the CBAM mechanism will be fully operational, and factories and businesses will no longer receive free CO2 emission allowances and will be required to pay 100% of the CBAM fees.
In a recent discussion on this issue, Ms. Nguyen Hong Loan, Director of Green Climate Innovation Company Limited (GreenCIC), shared that when Europe implements the CBAM mechanism, Vietnamese exporting businesses will face several challenges. Firstly, businesses will need to fulfill obligations related to greenhouse gas inventory reporting. Notably, CBAM not only requires data within the scope of the business but also demands emissions data from the supply chain, specifically from input materials.
Ms. Nguyen Hong Loan, Director of Green Climate Innovation Company Limited (GreenCIC).
Therefore, according to Ms. Loan, if businesses use materials of unknown origin or if suppliers do not have emissions data, they will face difficulties in reporting. Although Europe allows the use of relatively flexible data and methods for calculations in the initial phase, starting from 2025, the regulations will become stricter.
In reality, this is a new mechanism, and many businesses will face challenges related to awareness and difficulties in collecting data to meet reporting obligations. Particularly, when Europe concludes the transitional phase and potentially expands CBAM to other sectors, the mechanism will continue to evolve and adjust, posing additional challenges for businesses to adapt.
Ms. Nguyen Hong Loan further explained: "CBAM certificates are not actually purchased by exporting businesses. Instead, importers in Europe will need to register with tax authorities and buy CBAM certificates corresponding to the greenhouse gas emissions of the goods they import.
However, during the negotiation process, importers will seek to discuss and shift part of the costs onto exporting businesses. Additionally, the obligation to report and verify that the carbon pricing has been paid in the respective countries falls on the exporting entity;
From 2026, CBAM certificate submissions will be based on the emissions of the product, and these emissions must be verified by a third party recognized by European countries. Currently, Europe has only provided guidelines for the transition phase, and it is likely that detailed guidelines for the official implementation phase will be released by the end of 2025.
According to Ms. Nguyễn Hồng Loan, during the transition phase, businesses will need to familiarize themselves with the verification and auditing process conducted by an independent third party, as well as the potential cost-sharing with importers. In relation to payment obligations under the CBAM mechanism, this will contribute to increased costs for Vietnamese businesses.
Additionally, Vietnamese businesses affected by the mechanism will need to closely monitor Europe's policy development process and stay updated on the regulations when CBAM officially comes into effect.
Regarding greenhouse gas inventory reporting, Vietnam began implementing it in 2023, allocating allowance to 2,166 businesses. There will also be regulations related to carbon credit trading in the market.
Accordingly, businesses will need to establish a complete and comprehensive data system that can be regularly updated to meet CBAM reporting requirements. These reports must ensure sufficient accuracy and reliability for third-party verification. Additionally, businesses must assess costs and benefits and develop plans to reduce greenhouse gas emissions for their products.
Payment is the last resort and a passive approach. Businesses that want to enhance their competitiveness in the market must proactively develop strategies to reduce greenhouse gas emissions, such as adopting advanced technologies and gradually transitioning to greener practices. This will help minimize the costs associated with CBAM compliance.
Payment is the last resort and a passive solution. Businesses that want to enhance their competitiveness in the market must proactively develop strategies to reduce greenhouse gas emissions, such as adopting advanced technologies and gradually transitioning to greener practices. This will help lower the costs associated with CBAM compliance.
According to Ms. Nguyễn Hồng Loan, if a business has already paid a carbon price in the exporting country, the cost of CBAM certificates in Europe will be adjusted accordingly, deducting the carbon price already paid in the home country. Therefore, under this mechanism, businesses should support and collaborate with Vietnamese regulatory agencies by first conducting greenhouse gas inventories and endorsing domestic carbon pricing policies.
Additionally, financial support mechanisms related to green finance will provide businesses with resources to invest in technology transformation, reduce greenhouse gas emissions, enhance competitiveness, expand export markets, and mitigate the impact of CBAM.
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