At Marlin Blue, we analyze the key strategies that maritime operators and agents must adopt to meet Carbon Border Adjustment Mechanism (CBAM) requirements.

We will discuss a topic that is shaping a turning point in the fight against climate change: the CBAM.

What is the CBAM?

The CBAM is the EU’s climate tariff policy designed to equalize the cost of emissions between EU-produced goods and imports.

To understand CBAM, we need to look back at the adoption of the “Fit for 55” package, the most ambitious climate legislative package in European history. This set of 17 directives and regulations aims to accelerate compliance with the Paris Agreement by reducing greenhouse gas emissions by 55% by 2030 compared to 1990 levels.

Within this package, CBAM stands out as a central mechanism. Its purpose is clear: to align environmental standards for imported goods with those of EU-produced items, safeguarding the bloc’s competitiveness and decarbonization goals.

CBAM applies to imports of carbon-intensive products, initially targeting sectors like:

• Iron and steel
• Aluminum
• Cement
• Fertilizers
• Electricity

As it evolves, it is expected to expand to include additional goods, such as chemicals and manufactured products with high emissions.

In 2025, CBAM enters its transition phase. During this period, companies importing products like steel, aluminum, cement, fertilizers, and electricity into the EU will be required to report the carbon emissions associated with their production processes.

How CBAM works

CBAM operates on three fundamental pillars to promote sustainability and fair competition in global trade. These principles ensure the alignment of carbon costs for imports and EU-produced goods while fostering transparency.

1. Aligning EU Emissions Trading System (ETS) Costs

CBAM establishes a carbon cost for imports, mirroring the costs faced by EU producers under the EU Emissions Trading System (ETS).

• Encouraging emission reductions: By applying a carbon cost to imports, CBAM incentivizes manufacturers in non-EU countries to adopt cleaner production technologies to remain competitive in the EU market.
• Ensuring fair competition: Without CBAM, imported goods could undercut EU-produced goods, as foreign manufacturers often avoid carbon costs. CBAM ensures that all goods, whether produced domestically or imported, compete on equal terms.
• Replacing free allowances: Until now, EU industries have benefited from free emission allowances under the ETS to prevent production relocation to countries with weaker regulations. CBAM gradually replaces these allowances, maintaining competitiveness while promoting sustainability.
  Example: Producing a ton of fertilizer in Europe costs €110 due to ETS carbon pricing. An equivalent ton imported from China incurs a CBAM charge reflecting the same carbon cost, leveling the playing field and encouraging global adoption of greener practices.

2. Border Tax Adjustment

CBAM introduces a financial adjustment for imported goods to align their production costs with EU standards, discouraging production shifts to countries with lenient climate regulations.

• Balancing Production Costs: Carbon pricing for imports ensures that foreign products do not enjoy an unfair advantage over EU goods due to lower environmental standards.
• Encouraging Cleaner Practices Globally: By applying equivalent carbon costs, CBAM motivates non-EU manufacturers to adopt sustainable production methods to remain competitive.
• Practical Impact: If non-EU manufacturers adopt low-carbon technologies, their products face lower CBAM charges, creating a direct incentive for sustainable practices.

3. Reporting and Certification Requirements

The CBAM framework ensures transparency and accountability by requiring importers to report emissions data accurately and purchase certificates that reflect the carbon footprint of their goods. This process aligns imported products with the EU’s carbon pricing standards and consists of two integrated steps:

1. Emission monitoring and reporting

• Importers must monitor and provide detailed reports on the carbon emissions associated with their goods’ production.
• These reports must follow EU-approved methodologies to ensure consistency and reliability.
• The data serves as the basis for calculating the carbon cost applied to imported goods.

2. CBAM certificate acquisition

• Importers are required to purchase certificates corresponding to the carbon emissions embedded in their imports.
• The cost of these certificates is directly tied to the EU Emissions Trading System (ETS) market rates, ensuring imports carry the same carbon burden as EU-produced goods.

Transition Phase (2025-2026)

The CBAM will be implemented gradually to allow businesses and stakeholders to adapt to its requirements. This transitional phase focuses on emissions reporting without imposing financial obligations, paving the way for full implementation in 2026.

1. Gradual implementation timeline

• 2025–2026 Transition Phase:
  • Importers are required to report carbon emissions associated with their products.
  • No CBAM certificates need to be purchased during this period.
• 2026 Full implementation:
  • The purchase of CBAM certificates becomes mandatory, aligning imports with the EU’s carbon pricing structure under the Emissions Trading System (ETS).

2. Obligations during the transition

• Importers must submit detailed reports on the carbon emissions embedded in their goods.
• Financial obligations, such as certificate purchases, will not apply during this phase.
• This period allows stakeholders to:
  • Test and refine their emissions tracking and reporting systems.
  • Provide the EU with critical data to optimize the CBAM mechanism.

3. Preparing for full implementation
To ensure compliance with CBAM after 2026, businesses should take proactive measures, including:

• Establishing emissions tracking systems: Implement robust systems to monitor and report carbon emissions effectively.
• Conducting supply chain audits: Evaluate suppliers and processes to ensure imported goods meet CBAM’s transparency standards.
• Updating contracts and pricing models: Adjust agreements and pricing structures to reflect CBAM-related costs and compliance obligations.

Implications for Maritime Transport

Here are 10 concrete implications of the CBAM for maritime transport:

1. Bulk carriers transporting CBAM-regulated goods like fertilizers and cement will need to provide detailed emissions data for imported goods.
2. Shipping routes and freight agreements may shift as importers seek cost-effective solutions for sourcing compliant materials.
3. Freight contracts may require adjustments to account for CBAM-related costs and compliance obligations.
4. Freight operators will need to collect and submit emissions data for cargo, adding complexity to operational workflows.
5. CBAM costs could increase charterers’ expenses as importers pass on the financial burden of purchasing certificates.
6. Charter agreements will need to include specific clauses addressing CBAM compliance, reporting, and potential delays.
7. Supply chain strategies may shift, with importers favoring CBAM-compliant suppliers, potentially reducing demand for certain trade routes.
8. Specific vessel types, such as bulk carriers and tankers, may experience fluctuations in demand based on the carbon intensity of their cargo.
9. Non-compliance with CBAM requirements could expose shipowners to legal and financial liabilities.
10. Shipping companies investing in decarbonization strategies and transparent emissions reporting may gain a competitive edge in CBAM-compliant trade.

Implications for Marine Insurance

The CBAM introduces new reporting obligations and cost structures, which may increase risks in supply chains, such as delays or non-compliance penalties. Marine insurers will need to account for these emerging risks in their coverage terms.

1. Penalties for reporting failures, legal disputes, and delays caused by CBAM-related compliance requirements are critical risks insurers must address.
2. Transporting CBAM-regulated goods like steel, aluminum, fertilizers, and cement will likely result in increased premiums due to compliance complexities and financial risks.
3. Insurance contracts will need revisions to include liabilities related to emissions reporting inaccuracies, additional freight charges, and CBAM-related contractual disputes.
4. Claims for delays or cargo losses may now include CBAM-related expenses, particularly if contractual obligations assign these costs to operators or charterers.
5. Supply chain disruptions caused by documentation errors or CBAM compliance delays could lead to an increase in claims for operational setbacks.
6. Disputes over CBAM-related compliance costs or misreporting in contracts may result in higher demand for legal expense insurance.
7. New insurance products will need to address CBAM-specific risks, such as penalties for non-compliance, disruptions in supply chains, and errors in emissions certificate management.
8. Underwriters must assess compliance with CBAM regulations, focusing on emissions reporting accuracy, operational transparency, and the financial stability of insured entities.
9. The operational and financial challenges posed by CBAM compliance will drive insurers to recalibrate pricing models for policies covering CBAM-regulated goods.
10. CBAM may lead to increased fraudulent cargo documentation, as suppliers attempt to hide the true origin of goods to bypass compliance requirements.

FAQS

Q1: How does CBAM affect shipping contracts and agreements?
CBAM introduces additional costs and compliance requirements that must be incorporated into charter agreements, freight contracts, and other legal documents to avoid disputes.

Q2: Will CBAM increase premiums for transporting certain goods?
Yes, premiums for transporting CBAM-regulated goods like steel, aluminum, fertilizers, and cement are expected to rise due to heightened compliance risks and reporting obligations.

Q3: How can marine insurers help clients adapt to CBAM?
Insurers can offer tailored coverage solutions for CBAM-specific risks, provide guidance on compliance strategies, and incentivize decarbonization through reduced premiums.

Q4: What happens if CBAM-regulated goods are delayed during transport?
Delays caused by CBAM-related compliance or documentation issues could result in financial losses, claims for additional costs, and contractual penalties.

Request a consultation on contracts, agreements, and tailored legal advice to ensure compliance and mitigate CBAM-related risks.