CBAM & Carbon Emission
— A Green Transformation for Global Manufacturing
1. Understanding CBAM: Purpose, Scope, and Impact
The Carbon Border Adjustment Mechanism (CBAM) is a climate policy tool introduced by the European Union as part of its broader European Green Deal initiative. Officially adopted in 2023, CBAM entered its transitional phase in October 2023, with full implementation set for January 1, 2026. Its primary objective is to put a fair price on the carbon emitted during the production of goods imported into the EU, ensuring that European decarbonization efforts are not undermined by carbon leakage or less stringent climate policies abroad.
In essence, CBAM aims to create a level playing field between EU producers and foreign manufacturers by requiring importers to purchase CBAM certificates that reflect the carbon price that would have been paid had the goods been produced under EU carbon pricing rules. It initially covers carbon-intensive sectors such as steel, cement, aluminum, fertilizers, electricity, and hydrogen, with a long-term plan to broaden its scope.
From a strategic viewpoint, CBAM is not merely a trade tool; it is a transformational policy designed to encourage global industries to transition towards low-carbon manufacturing models. In our view, the broader ambition of CBAM is to accelerate a worldwide shift towards green manufacturing, promoting sustainable practices across global supply chains by using market forces rather than direct political agreements.
For European companies, CBAM presents both opportunities and challenges. While it protects domestic industries from unfair competition, it also increases administrative and compliance responsibilities for importers and buyers within the EU.
1.1 How to Prepare for CBAM Data Reporting
The CBAM reporting process is essential for importers and foreign manufacturers alike. It ensures that the carbon content of products entering the EU is transparent and accurately recorded. While the transitional phase (2023–2025) does not involve financial payments yet, quarterly emissions reporting is mandatory for covered products.
Here's how companies — including Chinese manufacturers — can prepare for CBAM data reporting:
✅ Key Steps for CBAM Reporting
| Step | Description |
| 1. Identify Affected Products | Confirm which products are subject to CBAM (e.g. iron, steel, aluminum, cement, fertilizer, hydrogen, electricity). |
| 2. Collect Embedded Emissions Data | Calculate direct emissions from the manufacturing process and indirect emissions (e.g. electricity used). Use recognized methodologies such as ISO 14067 or EU's own guidelines. |
| 3. Engage Suppliers | Coordinate with upstream suppliers to get emissions data for raw materials and components. |
| 4. Use an Approved Methodology | Adopt the EU-approved CBAM calculation method, which includes: <ul><li>Activity data (e.g., fuel used, electricity consumed)</li><li>Emission factors</li><li>Conversion efficiency</li></ul> |
| 5. Submit Quarterly Reports | Reports must be submitted electronically via the EU CBAM Transitional Registry, due at the end of each quarter, covering: <ul><li>Production details</li><li>Carbon emissions data (per ton)</li><li>Origin of electricity used</li></ul> |
| 6. Prepare for Verification | From 2026, emissions data must be verified by accredited third-party auditors. Companies should establish internal systems for traceability and accuracy. |
Example Diagram: CBAM Data Flow
Raw Material Supplier → Emissions Data → Manufacturer (e.g. Liangye) → Calculates embedded carbon → Provides CBAM Report to EU Importer → EU Importer submits to CBAM Registry
Result e.g. Shows in the Picture below:
2. The Outcome of CBAM and Comparisons with Other Carbon Regulations
The introduction of CBAM signifies a global turning point in climate policy. Unlike other mechanisms such as the EU Emissions Trading System (EU ETS), the U.S. Inflation Reduction Act, or China’s National Carbon Market, CBAM stands out because it applies to international trade, not just domestic production.
Its unique feature lies in the border adjustment: placing a carbon cost on imports based on their embedded emissions. This ensures that climate neutrality goals are not compromised by outsourcing production to countries with weaker carbon regulations.
Other countries are beginning to study or propose CBAM-like mechanisms. However, the EU remains the first and most advanced in implementation. If the system proves effective, we expect to see global harmonization of carbon pricing, incentivizing cross-border cooperation and supply chain transparency.
CBAM’s future lies in its evolving scope. As it expands into new sectors and deepens its verification requirements, it is likely to become a benchmark for climate-compliant trade, reshaping how global businesses plan production and sourcing strategies.
3. What Can Chinese Manufacturers Do?
As one of the world’s largest manufacturing hubs, Chinese factories are inevitably impacted by CBAM. However, this challenge also presents an opportunity. Many Chinese manufacturers, especially in coastal industrial areas, are already improving energy efficiency, digital traceability, and emissions reporting to meet global standards.
Advantages of Chinese manufacturers include:
• Strong production scale and cost-efficiency
• Rapid adaptation to environmental requirements when incentivized
• Government support for green transformation under the “Dual Carbon” goals
Disadvantages include:
• Complex supply chains that make emissions tracking difficult
• Inconsistent carbon data collection across regions
• Some reliance on coal-based energy in upstream sectors
To adapt, Chinese manufacturers need to invest in clean energy, transparent data systems, and collaboration with EU partners to align with CBAM protocols. Strategic alignment will not only ensure market access but also enhance brand credibility in international markets.
4. Liangye’s Proactive Approach
Recognizing the long-term significance of CBAM, Liangye began CBAM-related emissions reporting at the end of 2024. We believe that green transformation is not a cost, but an investment in sustainable growth and global competitiveness.
Liangye has initiated collaboration with our entire supply chain, working to optimize the carbon footprint of core components, including raw material sourcing, processing, and logistics. At the same time, we are negotiating with suppliers for better solutions and competitive pricing, ensuring that our clients benefit from both environmental responsibility and cost-effectiveness.
5. Prepared for the Future: More than CBAM
CBAM is only one part of the broader global shift in environmental and trade expectations. At Liangye, we are not only preparing for regulatory change, but also for market evolution. Buyers increasingly expect eco-conscious manufacturing, product transparency, and supply chain resilience.
Liangye is committed to being a reliable, forward-thinking partner in the power tool sector. Our proactive stance on sustainability, coupled with deep industry experience, ensures that we are ready to face not only the CBAM challenge—but also to embrace the green manufacturing revolution that lies ahead.
