The Rise of Product Carbon Footprint Regulations

As climate policy tightens across the world, two landmark European Union regulations — the EU Battery Regulation and the Carbon Border Adjustment Mechanism (CBAM) — are setting a new precedent for how carbon emissions are tracked, reported and priced. These rules don’t just affect companies within the EU, they’re reshaping supply chains and compliance strategies for exporters worldwide.

EU Battery Regulation: Embedding sustainability in battery production

The EU Battery Regulation (Regulation (EU) 2023/1542) that entered into force on Aug. 17, 2023, marks a transformative shift in how batteries are designed, produced and managed across their entire lifecycle.

Replacing the outdated 2006 Battery Directive, this regulation is a cornerstone of the EU’s Green Deal and Circular Economy Action Plan. It aims to ensure that batteries are not only high-performing but also sustainable, ethically sourced and recyclable. This is especially critical as demand for electric vehicles and energy storage systems increases, making batteries and their associated materials a strategic resource in the global energy transition.

The regulation responds to the exponential growth in battery demand, expected to increase 14-fold by 2030, with the EU accounting for 17% of global demand. By embedding environmental and social criteria into the regulatory framework, the EU is setting a global benchmark for responsible battery production and supply chain transparency.

Starting Feb. 18, 2025, manufacturers of electric vehicle (EV) batteries must submit a Carbon Footprint Declaration (CFD)  for each battery model and manufacturing plant, as required under Regulation (EU) 2023/1542. This requirement marks a significant shift, signaling that carbon transparency is becoming a prerequisite for market access in the EU. The regulation mandates the use of primary data — emissions data directly measured at production facilities or provided by suppliers — pushing companies to engage more deeply with their supply chains and invest in digital traceability tools.

These declarations will inform a performance-based classification system that will influence procurement decisions, consumer labeling, and eligibility for public incentives. Over time, the EU will introduce maximum carbon footprint thresholds, further tightening sustainability expectations.

The regulation also sets a phased timeline for other battery categories:

• Rechargeable industrial batteries (excluding those with external storage) – CFD required by July 26, 2026
• Light means of transport (LMT) batteries – CFD required by Aug. 18, 2028
• Industrial batteries with external storage – CFD required by Aug. 18, 2030

These measures are part of the EU’s broader strategy to reduce life cycle emissions and support the transition to a circular, low-carbon economy.

Additionally, Article 48 of the regulation introduces due diligence obligations for the sourcing of cobalt, lithium, nickel and natural graphite. These obligations require companies to identify and mitigate social and environmental risks in their supply chains, supported by third-party verification and conformity assessments. While originally set to apply from Aug. 18, 2025, the European Commission has proposed a two-year postponement to Aug. 18, 2027, to allow time for industry readiness and the establishment of accredited verification bodies.

CBAM: Putting the price on carbon at the border

The Carbon Border Adjustment Mechanism (CBAM) is the EU’s flagship policy to address carbon leakage. CBAM seeks to level the playing field by imposing a carbon price on imports of high-emission goods such as steel, aluminum, cement, fertilizers, electricity and hydrogen. Recent changes under the February 2025 Omnibus Simplification Package aim to reduce administrative burdens while preserving environmental integrity.

This mechanism ensures that EU producers that already face strict emissions regulations under the EU Emissions Trading System (ETS) are not undercut by cheaper, more carbon-intensive imports. However, CBAM is more than just a trade tool; it’s also climate diplomacy. It effectively exports the EU’s climate standards by requiring foreign producers to disclose and verify embedded emissions using methodologies aligned with EU norms.

Timeline  and requirements:

• Exemption threshold – Importers bringing in less than 50 tons of CBAM-covered goods annually are exempt from CBAM obligations, excluding hydrogen and electricity.
• Transitional Phase (Oct. 2023 to Dec. 2025) – Importers must report embedded emissions quarterly using primary data from producers or approved methodologies. No financial payments are required during this phase.
• Definitive Phase (Jan. 2026 onward) – Importers become financially responsible for embedded emissions in imported goods. They must purchase and surrender CBAM certificates annually to cover these emissions, creating a financial incentive for decarbonization beyond EU borders. However, CBAM certificates will not be available for purchase until Feb. 2027, per a proposal made by the European Commission and endorsed by EU member states, meaning the first surrender of certificates will likely occur after that point, even though the obligation starts in 2026.
• The European Commission is to publish a legislative proposal on carbon leakage for CBAM products in early 2026.
• Future scope – The EU is consulting on extending CBAM to downstream products and indirect emissions, but no expansion will occur before 2027.

For global exporters, this means that carbon accounting is no longer optional, it’s a cost of doing business in Europe.

Global ripple effects

These EU regulations are having a cascading impact on global trade and sustainability practices:

• Asia Pacific (APAC) exporters (e.g., in China, Japan and South Korea) are adopting product carbon footprint methodologies to maintain EU market access.
• Supply chain transparency is becoming a competitive advantage, with companies investing in digital tools and emissions tracking platforms.
• Regulatory convergence is underway with countries such as Australia, India and South Korea aligning with international standards like the ISSB and launching their own carbon reporting frameworks.
• The EU’s Corporate Sustainability Reporting Directive (CSRD) is further amplifying this shift by requiring detailed emissions disclosures from companies operating in or doing business with the EU. This is encouraging global firms to harmonize product-level and corporate-level carbon accounting practices.

Product carbon footprint regulations are transforming how companies measure, manage and monetize environmental impact. The shift from corporate-level to product-level emissions reporting is not just a compliance issue; it’s becoming a strategic differentiator for market access, investor confidence and long-term competitiveness.

For organizations, this means:

• Building robust data collection systems across product lines
• Engaging suppliers to gather primary emissions data
• Investing in LCA expertise and product sustainability software for emissions analysis
• Integrating carbon considerations into R&D and product design
• Gaining preferential access to the EU market
• Appealing to climate-conscious consumers and investors

Conversely, those that fail to adapt may face financial penalties, loss of market share or exclusion from key supply chains.

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