EU CBAM Transitional Phase Begins: What GCC Exporters Must Prepare For

What Is CBAM and Why Does It Matter for the GCC?

The Carbon Border Adjustment Mechanism is the European Union's instrument to address carbon leakage — the risk that stringent EU climate policies drive production to jurisdictions with weaker carbon pricing, resulting in no net reduction in global emissions. CBAM works by requiring importers of certain goods into the EU to purchase CBAM certificates corresponding to the embedded carbon emissions in those goods, at a price linked to the EU Emissions Trading System (ETS) allowance price.

For the GCC, CBAM is profoundly significant. The region is a major exporter of CBAM-covered goods to the EU, particularly aluminium, steel, fertiliser, and increasingly hydrogen. The Gulf's energy-intensive industrial base, powered predominantly by natural gas (and in some cases oil or coal), means that the embedded emissions in GCC exports are typically higher than European-produced equivalents, creating a material financial exposure once the definitive phase begins.

The Transitional Phase: October 2023 - December 2025

The transitional phase imposes reporting obligations but no financial adjustments. EU importers of CBAM-covered goods must submit quarterly CBAM reports containing:

• The total quantity of each type of goods imported, expressed in megawatt hours for electricity and tonnes for other goods
• The total actual embedded emissions, expressed in tonnes of CO&sub2;e per tonne of goods
• The total indirect emissions (from electricity consumed in production)
• Any carbon price due in the country of origin for the embedded emissions

Reporting Timeline

Covered Sectors and GCC Exposure

Aluminium

Aluminium is the GCC's largest CBAM exposure. The region hosts some of the world's largest aluminium smelters:

• Qatalum (Qatar): Joint venture between Qatar Energy and Norsk Hydro, producing approximately 650,000 tonnes per annum of primary aluminium. Powered by dedicated gas-fired power generation.
• Emirates Global Aluminium (UAE): The world's largest "premium aluminium" producer at approximately 2.7 million tonnes per annum, with smelters in Jebel Ali and Al Taweelah.
• Alba (Bahrain): Aluminium Bahrain produces approximately 1.6 million tonnes per annum, making it one of the world's largest single-site smelters.

Primary aluminium smelting is extraordinarily energy-intensive, consuming approximately 14-16 MWh per tonne of aluminium produced. When this electricity is generated from natural gas, the embedded emissions typically range from 8-12 tonnes CO&sub2;e per tonne of aluminium — significantly higher than the EU benchmark of approximately 1.5 tonnes CO&sub2;e per tonne for hydropower-based producers in Norway or Iceland.

Steel

The GCC steel sector is predominantly based on electric arc furnace (EAF) production using direct reduced iron (DRI). Key producers include Emirates Steel Arkan (UAE), Qatar Steel, and various Saudi producers. DRI-EAF production using natural gas has embedded emissions of approximately 1.0-1.5 tonnes CO&sub2; per tonne of crude steel — lower than blast furnace production but still subject to CBAM reporting.

Fertiliser

Qatar is a major exporter of urea and ammonia through Qatar Fertiliser Company (QAFCO) and Industries Qatar. Ammonia production from natural gas results in embedded emissions of approximately 1.8-2.5 tonnes CO&sub2; per tonne of ammonia, while urea production adds approximately 0.5 tonnes CO&sub2; per tonne beyond the ammonia feedstock emissions. Notably, a significant portion of the CO&sub2; generated in ammonia production is captured and used as feedstock for urea synthesis, but this CO&sub2; is released when urea is applied as fertiliser — creating complex accounting questions under CBAM methodology.

Cement

While GCC cement exports to the EU are currently limited, the sector is covered by CBAM and any future export growth will be subject to the mechanism. Qatar National Cement Company (QNCC) and other regional producers have typical emissions intensities of 0.6-0.8 tonnes CO&sub2; per tonne of clinker.

Hydrogen

Perhaps the most strategically significant CBAM sector for the GCC's future is hydrogen. Several GCC states — notably Saudi Arabia (NEOM green hydrogen project), the UAE, and Oman — are developing major hydrogen export capabilities targeting the EU market. CBAM coverage of hydrogen means that grey hydrogen (from natural gas without CCS) will face significant cost penalties, reinforcing the economic case for green or blue hydrogen production.

Calculating Embedded Emissions

CBAM requires calculation of embedded emissions using actual production data where available. The EU has published detailed implementing regulations specifying calculation methodologies, including:

• Direct emissions: Emissions from production processes, including combustion, process emissions, and fugitive releases
• Indirect emissions: Emissions from electricity consumed in production (though the treatment of indirect emissions evolves through the transitional period)
• Precursor emissions: Embedded emissions in input materials (e.g., clinker in cement, alumina in aluminium)

During the transitional phase, producers may use default values published by the European Commission if actual emissions data is not yet available. However, default values are intentionally conservative (set at the average of the top 10% most emissions-intensive installations globally), creating a strong incentive for producers to measure and report actual emissions, which may be lower.

"GCC producers who invest in accurate emissions measurement and reporting during the transitional phase will have a significant advantage when the definitive phase begins. Those relying on default values will pay more in CBAM certificates than their actual emissions warrant."

Financial Implications of the Definitive Phase

From 1 January 2026, EU importers must purchase CBAM certificates at a price linked to the weekly average EU ETS allowance price. As of mid-2023, EU ETS prices have fluctuated between EUR 80-100 per tonne of CO&sub2;. Assuming these price levels persist (many forecasters expect higher prices as free allocation is phased out), the financial implications for GCC exporters are substantial:

These figures make clear that CBAM represents a material cost for GCC exporters — not a marginal administrative burden. For aluminium and fertiliser producers, CBAM costs under current carbon prices could represent 30-60% of the product's value.

The Carbon Price Offset

CBAM allows for deduction of any carbon price already paid in the country of origin. Currently, no GCC country operates a carbon pricing mechanism (emissions trading scheme or carbon tax), meaning GCC exporters receive no offset against CBAM obligations. This creates a powerful incentive for GCC governments to consider domestic carbon pricing — revenue that would otherwise flow to EU coffers could instead be retained domestically and reinvested in decarbonisation.

How GHG Verification Supports Compliance

Third-party verification of emissions data is not mandatory during the CBAM transitional phase, but it is strongly recommended — and will likely become required under the definitive phase. GHG verification to ISO 14064-3 provides:

• Data credibility: Verified emissions data is more likely to be accepted by EU authorities and EU-based importers without challenge
• Accuracy assurance: Verification identifies errors in measurement, calculation, or reporting that could lead to overstated emissions and unnecessary CBAM costs
• Methodology alignment: Verifiers ensure that calculation boundaries and methods align with CBAM implementing regulation requirements
• Audit readiness: The verification process establishes documentation and quality management practices that prepare organisations for potential EU compliance audits

GSustain holds ISO 14001, ISO 9001, and ISO 45001 certifications and ISEP accreditation, positioning us to support GCC industrial producers in developing robust GHG inventory and verification processes that meet CBAM requirements.

What GCC Exporters Should Do Now

The transitional phase is not merely a reporting exercise — it is a strategic opportunity to prepare for the financial reality of CBAM. GCC exporters should:

• Establish emissions monitoring systems at facility level to generate actual (not default) emissions data for all CBAM-covered products
• Map EU export flows to quantify financial exposure under various carbon price scenarios
• Engage with EU importers to understand their CBAM reporting requirements and establish data-sharing agreements
• Develop decarbonisation roadmaps with quantified abatement opportunities and costs, prioritising measures that reduce embedded emissions below EU benchmark levels
• Seek third-party verification of emissions data to build credibility and identify measurement gaps before the definitive phase
• Monitor regulatory developments as CBAM implementing regulations continue to evolve and expand in scope

CBAM is not an abstract European policy concern — it is a direct, quantifiable commercial risk for GCC industrial producers. The organisations that use the transitional phase productively will be better positioned when financial adjustments begin in 2026.