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What will Compliance with the EU Carbon Border Adjustment Mechanism (CBAM) Cost?

There are obviously different angles when looking at the costs of #CBAM once it's fully phased in.

After all, "costs" are the reason for the #EU to adopt the regulation in the first place:

Carbon leakage occurs if, for reasons of costs related to climate policies, businesses in certain industry sectors or subsectors transfer production to other countries or imports from those countries replace equivalent products that are less intensive in terms of greenhouse gas emissions. [paragraph 9, recitals, REGULATION (EU) 2023/956]

So, the EU does consider the costs, but we want to look at it from a totally different angle of the stakeholders most affected. Industrial operators or producers outside the EU.

I would roughly categorise two main cost factors, one of which is obvious: The certificate costs. Let us for now not focus on these costs as those will be undoubtedly the highest position to account for. Given that each regulatory implementation will incur certain costs, I want to consider those costs that will become relevant even if no certificate is ever bought. Costs stemming from internal operational and administrative efforts, costs for other experts as well as the payable amount to Verifiers to comply with the verification principle set out in the regulation.

My initial breakdown for this looks as follows:

Verification Activities

  • Accredited Verifier pre-engagement: $250/hr, 4 hours = $1,000

  • Data Collection: $40/hr, 40 hours = $1,600

  • Verification Process: $250/hr, 8 hours = $2,000 Total for Verification Activities: $4,600

Internal Reporting Efforts

  • Data Aggregation: $40/hr, 20 hours = $800

  • Annual Declarations: $40/hr, 10 hours = $400

  • Quarterly Checks: $40/hr, 4 hours/quarter = $640/year Total for Internal Reporting Efforts: $1,840

Authorization and Registration

  • CBAM Declarant Application: $40/hr, 8 hours = $320

  • CBAM Register Inclusion: Opportunity cost, assume $250 Total for Authorization and Registration: $570

Technical Aspects

  • Software and Tools: One-time cost of $1,200

  • Training: $40/hr, 10 hours = $400 Total for Technical Aspects: $1,600

Legal Consultation

  • Legal Advice: $300/hr, 4 hours = $1,200 Total for Legal Consultation: $1,200

Additional Costs

  • Software Licenses: $250/year

  • Consultation Fees: $250/hr, 2 hours = $500 Total for Additional Costs: $750

Grand Total CBAM Compliance Costs EU: $10,560 per year

It's important to note that these costs are per installation. Scaling effects and established relationships with accredited verifiers can reduce costs over time. Assessing the total administrative costs for the entire non-EU economy, which still might be quite substantial, is challenging due to data limitations, but I plan to explore this in a future article focusing on a specific sector.

Before the end of the transitional period, Article 30 of the regulation mandates the EC to report on administrative costs.

Of the governance system.

I invite operators to share their administrative cost assessments and the sectors they operate in. Are my assumptions reasonable?

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