Understanding the Carbon Border Adjustment Mechanism (CBAM): A Guide for Malaysian Manufacturers

Understanding the Carbon Border Adjustment Mechanism (CBAM)

A Guide for Malaysian Manufacturers

Tabitha Ow
16/07/2025
Understanding the Carbon Border Adjustment Mechanism (CBAM): A Guide for Malaysian Manufacturers

What is CBAM?

The Carbon Border Adjustment Mechanism (CBAM) is a policy introduced by the European Union to level the playing field on climate action. It aims to ensure that companies, regardless of where they operate, adhere to similar environmental standards. In the past, some businesses have shifted production to countries with less stringent environmental regulations to cut costs and avoid carbon pricing, a practice known as carbon leakage. CBAM tackles this issue by placing a carbon cost on imported goods that are produced with high emissions, ensuring that EU producers aren’t disadvantaged and that global decarbonisation efforts remain fair and effective.

Unlike traditional tariffs, CBAM focuses specifically on the embedded carbon emissions in imported products. Importers must report the emissions associated with their goods and, from 2026, will need to purchase CBAM certificates in line with those emissions. This shift places new expectations on Malaysian manufacturers and exporters, who must be equipped to track, calculate, and disclose the carbon footprint of their products to remain compliant and competitive in the EU market.

 

When Does CBAM Take Effect?


CBAM is being implemented in a phased approach to allow businesses and governments time to prepare:

  • Transitional Phase (1 October 2023 – 31 December 2025):
    Importers of CBAM-covered goods must submit quarterly reports detailing the embedded direct and indirect emissions in their products. No payments are required during this period, but accurate reporting is mandatory.
  • Definitive Phase (Starting 1 January 2026):
    Importers must begin purchasing and surrendering CBAM certificates annually to cover reported emissions. These certificates reflect the carbon price that would have been paid if the goods were produced under the EU ETS.
  • Future Expansion (By 2030):
    CBAM is expected to expand to cover all sectors included in the EU ETS, with free carbon allowances for EU producers being fully phased out by 2034.

This timeline offers a window of opportunity for businesses to strengthen their carbon reporting systems, assess exposure, and plan mitigation strategies before financial obligations begin.

CBAM Responsibilities

Exporters vs. Importers


CBAM introduces a shared responsibility model across exporters and EU importers. The table below summarises the key actions required from each party at different stages of the export process:

Carbon Border Adjustment Mechanism (CBAM)
  The Exporter (e.g. Manufacturer) The Importer or 'Your Customer'
Before Export Conduct a Life Cycle Assessment (LCA) and report/provide data on the embedded carbon emissions of your products No Action Needed
Verification of the Carbon Emissions
Provide Information to EU Importer
At the Border No Action Needed
  • Declaring the carbon emissions of the imported goods
  • Purchase of CBAM certifications to cover the emissions

Which Sectors and Products Are Affected?


ESG - Six sectors with high carbon intensity and significant risk of carbon leakage

CBAM currently applies to six sectors with high carbon intensity and significant risk of carbon leakage.

The European Commission will continue reviewing the product list, with the potential to expand the scope to include additional sectors like organic chemicals, plastics and refined petroleum products.

For affected businesses, compliance means having product-level emissions data, reliable tracking systems and active collaboration across the supply chain.

What are the challenges faced by Malaysian exporters?


Malaysia, as a key manufacturing and export hub in Southeast Asia, is particularly exposed to the EU’s CBAM requirements. According to the Malaysian Investment Development Authority (MIDA), around 75% of Malaysia’s exports to the EU fall under sectors currently covered by CBAM, particularly iron and steel, aluminium, and fertilisers.

Key implications for Malaysian businesses include:

  • Reporting and verification requirements during the transitional phase
  • Financial liability for CBAM certificates starting in 2026
  • Stricter carbon data expectations from EU buyers and regulators
  • Competitive pressure to demonstrate carbon reductions and ESG compliance

Exporters without accurate emissions data or carbon management systems risk losing access to the EU market or facing significant compliance costs. At the same time, companies that act early to align with CBAM requirements can build trust with global buyers and gain a first-mover advantage in the low-carbon economy.

Life Cycle Assessment (LCA) for CBAM Compliance


ESG - Life Cycle Assessment

As a trusted professional services firm, we help you turn CBAM from a compliance burden into a strategic advantage.

Life Cycle Assessment (LCA) is the foundation of CBAM compliance. It is a structured methodology used to measure the embedded carbon emissions of a product across its entire life cycle, from raw material extraction to processing, manufacturing, distribution, use, and end-of-life.

By assessing emissions at each stage of the value chain, LCA enables businesses not only to meet CBAM’s reporting requirements but also to identify emission hotspots across operations and supply chains. These insights provide a clear path to process optimisation and emissions reduction. Companies that act on these insights can deliver lower-carbon products, which are increasingly preferred by EU buyers.

How we can help


Our services include:

  • Conducting product-level LCAs to quantify embedded emissions
  • Establishing baselines aligned with EU reporting templates

Our approach combines technical precision with deep understanding of EU regulatory frameworks, ensuring your carbon data meets CBAM standards and builds confidence with EU buyers.

CBAM is more than a regulatory hurdle, it’s a chance to differentiate your brand, strengthen buyer trust, and lead the low-carbon transition. With our deep expertise and local insight, we’ll help you stay compliant, competitive, and climate ready.

Beyond LCA, we offer an integrated suite of services to support CBAM readiness:

  • ESG Strategy & Decarbonisation: Embedding CBAM into long-term climate roadmaps
  • CBAM Reporting & Verification Support: Ensuring data integrity and audit readiness
  • Supply Chain Emissions Mapping: Identifying carbon hotspots across your suppliers
  • Internal Capacity Building: Training teams in carbon accounting and compliance

These services work together with LCA to future-proof your business in a low-carbon economy.

References
Carbon Border Adjustment Mechanism (CBAM), European Commission – Access2Markets.
Carbon Border Adjustment Mechanism. European Commission - Taxation and Customs Union.

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Our ESG Experts

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Tabitha Ow
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