The Carbon Border Adjustment Mechanism’s Impact on Manufacturing Firms: A Single Case Study of a Swedish Manufacturing Company Joakim Erlandsson Otto Pihl Supervisor: Victor Eriksson Master’s Thesis in Logistics and Transport Management Spring 2025 Graduate School, School of Business, Economics and Law, University of Gothenburg, Sweden The Carbon Border Adjustment Mechanisms Impact on Manufacturing Firms: A Single Case Study of a Swedish Manufacturing Company © May 2025 Joakim Erlandsson & Otto Pihl School of Business, Economics and Law, University of Gothenburg Box 695 405 30 Gothenburg, Sweden Institute of Industrial and Financial Management and Logistics All rights reserved. No parts of this thesis may be distributed or reproduced without the written permission by the authors Acknowledgements During the process of writing this thesis, we have received exceptional support from several individuals and organizations. First and foremost, we would like to thank SKF for granting us the opportunity to work on this project and for providing continuous support throughout the process. We would especially like to express our sincere gratitude to Fiaz Darshan, our supervisor at SKF, for his invaluable assistance in everything from helping us interpret complex data files to facilitating contact with key stakeholders. Fiaz has consistently shown belief in our work, offering constructive feedback and input for improvement while also giving us the freedom to explore our ideas independently. His support has been instrumental in shaping the direction and quality of this thesis. Secondly, we would like to thank our university supervisor, Victor Eriksson, for his guidance and support throughout this project. From the very beginning, Victor immediately understood our vision and encouraged us to shape the report in our own way, while continuously providing thoughtful and constructive feedback. It quickly became clear to us that his insights were aligned with our own, and that by following his suggestions, we would be able to develop a strong and cohesive thesis. Gothenburg, May 26th, 2025 Abstract As sustainability-related regulations continue to shape international trade, companies are increasingly facing challenges related to regulatory compliance, supply chain restructuring, and rising operational costs. In early 2026, the European Union will implement the Carbon Border Adjustment Mechanism (CBAM), a policy targeting importers of carbon-intensive products. CBAM requires EU buyers to report the embedded emissions of imported goods, placing new demands on supply chain transparency and supplier collaboration. This study aims to assess the potential impact of CBAM on a major EU-based manufacturer of CBAM-covered products, as well as to explore strategies for mitigating that impact. The research combines three components: (1) qualitative interviews with internal stakeholders to evaluate awareness and preparedness, (2) scenario-based calculations estimating the financial impact of CBAM under different reporting conditions, and (3) a scoping review of existing literature to identify strategic responses to similar regulatory challenges. Key findings suggest that the awareness within the case company is increasing, however, some inconsistencies remain across different departments. Currently, the most critical challenge regards the lack of verified emission data from suppliers. The quantitative scenario analysis revealed that reliance on EU default emission values, when supplier data is missing, could lead to significant increases in import costs after the full launch of CBAM. The scoping review highlights a growing emphasis on supplier engagement, emission data verification, and strategic supply chain restructures as effective responses to carbon-based trade regulations. Based on these insights, the study recommends that companies enhance internal coordination, improve supplier transparency, and explore sustainable, long-term sourcing alternatives to reduce financial risk and ensure regulatory compliance. Keywords: Carbon Border Adjustment Mechanism, Supply Chain Management, Emissions Reporting, Steel Industry, Supplier Transparency, Strategic Sourcing, Regulatory Compliance, Carbon Leakage, Environmental Policy. Table of Contents 1. Introduction............................................................................................................................ 1 1.1. Background................................................................................................................... 1 1.2. Research Purpose and Relevance..................................................................................3 1.3. Structure of the Thesis...................................................................................................4 2. Theoretical Background......................................................................................................... 6 2.1. International Trade........................................................................................................ 6 2.1.1. Characteristics of International Trade Regulations.............................................. 7 2.1.2. Emission Trading System (ETS).......................................................................... 9 2.1.3. The Harmonized System (HS)........................................................................... 10 2.2. Global Supply Chains..................................................................................................11 2.2.1. Supplier Relations.............................................................................................. 11 2.2.2 Supply Chain Reconfiguration............................................................................ 12 2.2.3. Risk.....................................................................................................................13 2.2.3.1. Risk Mitigation Strategies.........................................................................15 2.3. Governance and Organizational Coordination............................................................ 16 2.4. Carbon Border Adjustment Mechanism (CBAM)...................................................... 18 2.4.1. Scope of CBAM................................................................................................. 18 2.4.2. CBAM Reporting Procedure & Requirements...................................................19 2.4.3. CBAM Certificate Calculations......................................................................... 20 2.4.4. Challenges and Global Implications of CBAM................................................. 20 2.5. Analytical Framework and Research Questions......................................................... 22 3. Method................................................................................................................................. 26 3.1. Research Design..........................................................................................................26 3.2. Data Collection & Analysis.........................................................................................28 3.2.1. Data Collection for the Case Study.................................................................... 28 3.2.1.1. Interviews.................................................................................................. 28 Conducting the Interviews............................................................................... 29 Interview Themes and Key Questions............................................................. 29 3.2.2. Data Collection for the Scenario Analyses.........................................................30 3.2.3. Data Collection for the Scoping Study...............................................................31 3.3. Quality of the Research............................................................................................... 35 3.3.1. Internal Validity..................................................................................................35 3.3.2. External Validity.................................................................................................36 3.3.3. Construct Validity...............................................................................................36 3.3.4. Internal Reliability..............................................................................................37 3.3.5. External Reliability............................................................................................ 37 3.3.6. Relation Between Validity and Reliability......................................................... 37 4. Industry Setting - The Steel & Bearing Industry..................................................................39 4.1. SKF..............................................................................................................................40 5. Findings................................................................................................................................43 5.1. SKF’s Awareness and Perceived Challenges of CBAM............................................ 43 5.1.1. Awareness & Understanding of CBAM............................................................. 43 5.1.2. Challenges and Risks with CBAM Compliance................................................ 45 5.1.3. Opportunities and Strategic Benefits of CBAM Compliance within SKF.........46 5.1.4. Current and Future Preparation Strategies for CBAM Compliance within SKF... 47 5.2. Scenario Analysis........................................................................................................48 5.2.1. Scenario 1...........................................................................................................48 5.2.2. Scenario 2...........................................................................................................50 5.2.3. Scenario 3...........................................................................................................50 5.3. Results of the Scoping Study...................................................................................... 51 5.3.1. Trade and Economic Impact...............................................................................51 5.3.2. Supplier Management........................................................................................ 53 5.3.3. Sustainability Innovation....................................................................................55 5.3.4. Political Consideration and Aid......................................................................... 57 5.3.5. Compliance and Regulatory Issues.................................................................... 58 5.3.6. Supply Chain Realignment.................................................................................60 6. Case Analysis and Discussion..............................................................................................62 6.1. Trade and Economic Impact........................................................................................63 6.2. Compliance and Governance...................................................................................... 65 6.3. Supplier Implications and Risks..................................................................................68 7. Conclusion............................................................................................................................73 7.1. Answering the Research Questions.............................................................................73 7.2. Practical Implications..................................................................................................75 7.3. Theoretical Implications..............................................................................................77 7.4. Policy Implications......................................................................................................78 7.5. Recommendations for Further Research..................................................................... 79 Reference list............................................................................................................................81 Appendix.................................................................................................................................. 94 Appendix A: Scoping Review............................................................................................94 Appendix B: Scenario Analysis......................................................................................... 96 Appendix C: Interviews..................................................................................................... 98 List of Figures Figure 1: Internal and External Risk………………………………………………..…….….14 Figure 2: Analytical Framework Illustrated……………………………………..…….……..24 Figure 3: Reliability and Validity relation…………….….……….………….…..….……….38 List of Tables Table 1: Interview Themes, Objectives, and Questions……………………………..……….30 Table 2: CBAM Benchmark and SEE (Supplier 1), CN 732619……………….………..…..48 Table 3: CBAM Benchmark and SEE (Supplier 2), CN 732690……………….………..…..49 Table 4: Required CBAM Certificates and Costs for Supplier 2…………………….……....49 Table 5: CBAM Costs Without Supplier Data…………………………………….……..…..51 Glossary CBAM: Carbon Border Adjustment Mechanism HS Code: Harmonized System Code CN Code: Combined Nomenclature Code EU: European Union GHG: Greenhouse Gas CO2: Carbon Dioxide WTO: World Trade Organization CSR: Corporate Social Responsibility KPI: Key Performance Indicator 1. Introduction This chapter introduces the thesis by outlining the broader context in which the study is situated. It presents the background, purpose of the research, and the structure of the thesis. 1.1. Background In recent years, global supply chains have faced significant challenges caused by the introduction of policies and regulations, many of which are related to promoting sustainable practices and the reduction of carbon emissions (Rudge, 2024). Traditionally, companies have been sourcing from low-cost regions to optimize cost efficiency in supply chains (Min & Kim, 2011). However, recent global developments and an influx of regulatory changes, trade disputes, tariffs, geopolitical shifts, and environmental policies are forcing a structural change in global supply chains (Pinheiro et al., 2019). Regulatory shifts impacting global supply chains have led to heightened tensions among supply chain partners, particularly when compliance necessitates significant investments in greener production technologies, enhanced transparency, and overall process modifications (Ghosh & Shah, 2012). Moreover, in addition to regulatory changes, global disruptions such as pandemics, trade wars, and tariffs have further exposed the vulnerabilities of modern supply chains (Oliveira et al., 2013). Such disruptions are not isolated incidents, but rather part of an evolving pattern in global trade (Handfield et al., 2020). Additionally, the emphasis on lowest-cost sourcing has reduced the stability of global supply chains, making them less adaptable to sudden disruptions (Handfield et al., 2020). Recent events, such as the COVID-19 pandemic, have demonstrated that companies relying on distant suppliers within complex, multi-tier networks are more vulnerable to delays, shortages, and increased costs when faced with geopolitical or economic shifts (Graves et al., 2022). Ultimately, regulatory shifts and increased vulnerabilities have required companies to navigate a more uncertain and fragmented supply chain landscape (Kancs, 2023). While strategies such as nearshoring and regionalization can improve stability, they also increase operational complexity, create new cost pressures, and require long-term investment in supplier development (Alicke et al., 2023; Kancs, 2023). As a result, firms 1 need to constantly adjust their supply chain strategies to stay competitive in an evolving regulatory and economic environment. In 2019, the European Union presented the European Green Deal (EGD), with the purpose of making Europe the first climate-neutral continent by 2050 (European Commission, 2019). The EGD is set out to cover all sectors of the economy, and has set the stage for other plans and policies, such as the Circular Economy Action Plan, Corporate Sustainability Reporting Directive, and the Circular Economy Action Plan. More recently, the EU launched the Carbon Border Adjustment Mechanism (CBAM) to prevent carbon leakage by pricing the carbon emissions associated with the production of certain goods entering the EU (European Commission, 2025). Under CBAM, importers (i.e., buyers of goods) must report the carbon emissions generated during the production of goods manufactured outside EU borders (European Commission, 2025). This measure aims to discourage companies from relocating carbon-intensive production to countries with less stringent climate regulations (Mehling et al., 2019), a practice known as carbon leakage, which undermines global climate goals. CBAM is set to launch fully in January 2026 but has already been partially implemented in its transitional phase, which began in October 2023. Since its partial launch, buying organizations that import goods from outside the EU have been required to report emissions, without the need for purchasing and surrender certificates (European Commission, 2025). With the introduction and full launch of CBAM, actors importing the goods it covers will be significantly impacted (Lewis, 2023). Moreover, it can be argued that the suppliers and producers of the goods will bear the more significant burden of the regulation, as their capabilities of providing accurate data regarding embedded emissions in the production phase are critical (Calderaro & Levato, 2024). More active involvement with suppliers is key to securing relevant information about production processes and emissions (Calderaro & Levato, 2024). While the reporting burden lies on the buyers, the availability of quantified emission data falls on the supplier. The introduction of CBAM has, therefore, raised concerns regarding its effects on supply chain actors both inside and especially outside of the EU (Calderaro & Levato, 2024). The full implementation of the CBAM will lead to increased supply chain costs and possible global trade tensions, but also provide opportunities because of the need for innovation and investment in cleaner technologies (IMF, 2023). 2 One product significantly affected by the launch of CBAM is steel. Crude steel production reached 1892 million metric tons in 2023 and is mainly used in sectors such as building and infrastructure, mechanical equipment, automotive, and metal products (World Steel Association, 2024). Steel is traded globally, with China being the lead exporter, followed by Japan, South Korea, and Germany (Statista, 2022a). The United States is the global leading importer of steel, followed by Germany, Italy, and Turkey (Statista, 2022b). Steel production was responsible for around 8% of the total global carbon emissions in 2020, making it a significant target for carbon reduction regulations (Mitchell & Stall, 2021). The introduction of CBAM poses challenges for EU importers of steel, with potential changes in global and local market structures (Guo, 2023). The full implementation of the CBAM regulation in 2026 presents several challenges to global supply chains. Manufacturing companies that rely on the production and importation of steel and steel products to the EU will need to assess and potentially adjust their supply chains to comply with the regulation’s requirements. Because production emission data must be transparent, companies require accurate information from all their suppliers when declaring imported goods. Moreover, the anticipated costs associated with CBAM-related certificates are expected to necessitate significant financial investments, while inaccuracies or non-compliance in the reporting process could result in substantial financial penalties (European Commission, 2023). Contemporary literature and existing studies predominantly focus on the effects of the CBAM from the supplier’s perspective, examining how exporters outside the EU are impacted by compliance requirements, carbon pricing, and reporting obligations. However, there is a noticeable gap in existing research that explores the implications of CBAM from the buyer’s perspective. There is a particular gap regarding how EU-based importers and manufacturers navigate the regulatory, operational, and strategic challenges introduced by the mechanism. 1.2. Research Purpose and Relevance Given what is described in the introductory section, the purpose of this thesis is to explore the implications of CBAM on global manufacturing firms, with a particular focus on the importation of steel products into the European Union. By examining both the financial and operational challenges introduced by CBAM, the study aims to assess how 3 manufacturing firms can respond to ensure compliance, manage costs, and maintain competitiveness. Through a combination of scenario-based cost analysis, qualitative insights, and theoretical exploration, the thesis provides a multifaceted understanding of the regulation’s potential impact and highlights actionable strategies for adaptation. This thesis provides practical insights from the buyer’s perspective in navigating the evolving regulatory landscape, maintaining competitiveness, and achieving long-term sustainability in their supply chains. Theoretically, this study contributes to the literature on regulatory compliance within international trade contexts. While previous research has examined the supplier-side implications of carbon regulations such as the CBAM, there is a gap in understanding how buyers and importers navigate such regulatory transformations. This thesis addresses that regulatory gap by exploring the intersection between regulatory compliance, supply chain strategy, and cost management from the buyer’s perspective. The insights gathered deepen academic understanding of how environmental regulations reshape manufacturing supply chains and buyer-supplier dynamics. 1.3. Structure of the Thesis This thesis is structured as follows: Chapter 2's Theoretical Background introduces key concepts and academic literature relevant to international trade, global supply chains, supplier relationships, and CBAM. It also outlines the analytical framework used to guide the analysis. The Methodology in Chapter 3 explains the research design and methodology, including the case study approach, data collection through interviews and internal data, and the execution of a scoping review. Chapter 4 of the Industry Setting provides contextual background on the steel and bearing industry, with a particular focus on the case company SKF. The Findings in Chapter 5 present the empirical results, including internal interview insights, CBAM scenario-based cost calculations, and the outcomes of the scoping review. The Analysis and Discussion in chapter 6 analyzes the findings in light of the theoretical framework, discussing the trade and economic implications, internal compliance challenges, and supplier-related risks associated with CBAM. 4 Chapter 7, the Conclusion, summarizes the main research findings, outlines practical, theoretical, and policy implications, and offers suggestions for future research. 5 2. Theoretical Background This chapter introduces the theoretical foundation of the study. It presents key academic concepts relevant to international trade, global supply chains, emissions regulation, and organizational coordination. These theoretical components are used to build an analytical framework that guides the structure and interpretation of the empirical analysis later in the thesis. Based on this framework, the chapter also introduces the research questions that form the basis of the thesis. These questions are developed to explore how manufacturing firms respond to CBAM in practice and to connect theoretical insights with real-world challenges related to regulatory compliance and supply chain restructuring. 2.1. International Trade International trade can be defined as the exchange of goods, capital, services, and technology across national borders to meet a demand. It is a key driver for global economic growth and development (EDU Maritime, n.d.). International trade allows for and enables countries to benefit from comparative advantages, meaning the use of specific skills, or lack thereof, to facilitate trade and development (Kowalski, 2011). This fosters economic collaboration and interdependence and enables economies to reach new markets, resources, innovation, and technology that would not be available otherwise (Surugiu & Surugiu, 2015). A key aspect of international trade is the cross-border nature, which in turn requires thorough navigation of regulatory frameworks, customs systems, trade agreements, and governmental directives (UNCTAD, 2013). These aspects and challenges underscore the connectedness of countries in global trade. Today, trade flows are ever more embedded and included in global supply chains (EBRD, 2023). Goods and services often pass through multiple countries and regions during their lifespan, hence making international trade deeply connected to supply chain, logistics, and operational efficiency. International trade is furthermore shaped by its dependence on fluctuating exchange rates and currency differences, which in turn, introduce additional financial complexity to an already complex environment (Mehtiyev, Magda, & Vasa, 2021). Furthermore, sustainability is a topic and concept that is becoming more intertwined in global trade (Marx et al., 2021). Due to the sustainability goals created by actors such as the UN and EU, companies are forced to take action to become more sustainable, 6 consequently affecting international trade significantly (de Lange et al., 2024). A common way for companies to become more sustainable or resilient from a supply chain perspective is to reduce the length of their supply chain and nearshore production to a closer proximity to the point of consumption (Ashby, 2016). This has several consequences on global trade. First, due to the shortening of supply chains, global regulations and actors are reduced, possibly simplifying international trade processes. Second, due to moving the supply chain closer to the core business, risks such as supply chain disruptions are less likely to become an issue (Ashby, 2016). Lastly, even though supply chains might become more sustainable and more resilient due to adjustments, it's not a guarantee. For instance, moving production facilities from Asia to Europe can come with a significant bump in costs for industries such as the steel industry (Medarac et al., 2020). Companies engaging in the global trade landscape, hence, need to consider multiple factors to be able to succeed in the modern business world and to balance financial results and economic stability with environmentally sound business practices. 2.1.1. Characteristics of International Trade Regulations International trade involves laws, directives, and customs procedures that regulate trade between countries in an international context (Suresh, 2020). International trade regulations refer to the set of rules and standards established by international bodies, such as the World Trade Organization (WTO), and individual countries to govern the exchange of goods and services across borders (UNECE, 2024). The general and overarching goals of international trade regulations are to ensure fair competition between companies and countries, protect consumers, and help drive economic growth worldwide (UNECE, 2024). These regulations are created with the goal of creating an even playing field for all actors involved and ensuring that global trade flows are compliant and safe regarding unsafe trade practices and development (Hoekman, 2019). Trade regulations can be implemented in various forms aimed at tackling different layers of business. For instance, sustainability directives such as CBAM, which aim to reduce and regulate emissions, are one way of implementing and regulating a particular aspect of trade to promote a more sustainable way of producing (International Trade Council, 2024a). Another way of implementing an international trade regulation is in the form of an import tariff. An import tariff is designed to tax imported goods, and consequently promote domestic factors, 7 such as manufacturing, to name an example (Acharyya, 2023). One example is the European steel safeguard measure created by the European Commission, which imposes tariffs on steel products imported from outside the EU to promote the intra-regional steel industry (European Commission, 2024). Global trade regulations impact international companies in various ways. For instance, the risk of strategic disruption due to the regulation or limitation of key markets can lead companies to shift their focus and adapt their strategies (Klint, 2025). This may involve reevaluating market priorities, adjusting supply chains, and innovating to meet new compliance requirements. For instance, the imposition of tariffs and sanctions on certain countries can force companies to reconsider their operations and supply chain strategy (Klint, 2025). A notable instance is the impact of Brexit on European companies, where the new trade barriers and customs checks led many businesses to establish new distribution centers within the EU to avoid delays and additional costs associated with cross-border trade (L’Hotellerie-Fallois et al., 2020). International trade regulations, albeit good in nature, still pose risks to the global economy and the global business landscape (International Trade Council, 2024b). As an example, the implementation of border adjustment mechanisms, such as CBAM, can lead to retaliatory effects. CBAM imposes a carbon price on imported goods to prevent carbon leakage and ensure fair competition. However, this can prompt affected countries to impose their own trade barriers in response, leading to a cycle of retaliation (International Trade Council, 2024a). Furthermore, continuing with the CBAM example, emerging economy countries argue that mechanisms such as this are, in nature, discriminatory to developing countries, and in practice, make the gap larger between developing countries and already developed countries (International Trade Council, 2024a). This is because emerging economy countries generally do not possess the same clean technology that already well-established economies have, hence widening the economic gap (International Trade Council, 2024a). Additionally, trade regulations can lead to increased protectionism, where countries adopt measures to protect their domestic industries from foreign competition (International Trade Council, 2024c). This shift towards protectionism can reduce global trade volumes, distort prices, and lead to strained international relations (International Trade Council, 2024c). As countries impose tariffs and other trade barriers in response to trade regulations, 8 the risk of trade conflicts and economic instability grows, further complicating the global trade landscape (World Economic Forum, 2025). 2.1.2. Emission Trading System (ETS) The Emission Trading System (ETS) issued by the European Union is one of the world's largest and most established carbon pricing mechanisms designed to reduce greenhouse gas (GHG) emissions cost-effectively (European Commission, n.d.). It follows a market-based "cap-and-trade" principle, which means that a fixed limit (i.e., cap) is placed on the total amount of certain greenhouse gases that industries can emit. This cap gradually reduces over time, fostering long-term emission reductions and supporting the EU's climate goals (European Commission, n.d.). The environmental impact of the EU ETS can be divided into two primary objectives. The first objective is to reduce GHG emissions efficiently and strike a balance between cost and environmental sustainability (Laing et al., 2013). The second goal is to promote corporate investment in low-carbon technologies, including energy efficiency improvements and adopting and transitioning into low-carbon energy sources (Laing et al., 2013). In its fundamental design, the EU ETS has achieved its main environmental objective by reducing power and industrial greenhouse gas emissions by approximately 40% of total EU emissions compared to 2005 levels (European Commission, n.d). Within this framework, companies receive or purchase emission allowances, each permitting the emission of one ton of CO₂ or its equivalent in other greenhouse gases (European Commission, 2016). If a company emits less than its allotted allowances, the company can sell the emission surplus to other companies. This creates a financial incentive for reducing emissions due to the emission rights being tradeable (European Commission, 2016). However, companies that exceed their emission limits must buy additional allowances or face financial penalties for emitting more than what they are allowed to (European Commission, 2016). This trading mechanism promotes efficiency by allowing low-cost emission reductions to occur first and generating market signals that encourage ongoing investment in cleaner technologies and sustainable production processes (European Commission, n.d.). 9 The EU ETS integrates economic incentives with environmental objectives, pushing industries toward decarbonization and aligning with the EU's ambitious target of achieving carbon neutrality by 2050. As climate-related regulations continue to evolve, accurate classification and tracking of goods through systems such as the Harmonized System (HS) codes become increasingly important in managing trade-related environmental policies. 2.1.3. The Harmonized System (HS) The Harmonized Commodity Description and Coding System (HS) is an internationally standardized system developed by the World Customs Organization to classify traded goods (World Customs Organization, n.d.). It facilitates customs procedures by providing a uniform structure for categorizing products, which is essential for calculating duties, taxes, and complying with trade regulations like the EU’s CBAM. The HS uses a six-digit numeric code to classify goods. The first two digits represent the chapter, identifying the broad product category; the next two digits are the heading, which narrows down the category; and the final two digits are subheadings, which specify the exact product (World Customs Organization, n.d.). For example, code 7207.11 refers to semi-finished iron or non-alloy steel products with a rectangular cross-section, one of many categories potentially subject to CBAM regulations due to embedded carbon emissions. The HS code system is extended into what is known as Combined Nomenclature (CN) codes, which provide more detailed classifications. These CN codes are used in CBAM reporting to even more accurately identify the type of imported goods. While the HS and CN system streamlines trade, it is not without challenges. Misclassification of goods is one of the most common issues, leading to customs delays, overpayment of duties, or non-compliance penalties (International Federation of Customs Brokers Associations, 2018). Misinterpretation can occur when exporting and importing countries apply different interpretations of the same code. This becomes especially problematic under CBAM, where incorrect classification could result in inaccurate carbon cost calculations or missed reporting obligations. Furthermore, the HS and CN code systems are updated every five years to reflect technological advancements, shifts in industry, and evolving trade patterns (García-Vazquez 10 & Simoes, 2023). While necessary, these updates increase the complexity for companies involved in global trade, requiring constant monitoring to ensure continued compliance. The Harmonized System plays a critical role in international trade and customs. For global companies that depend on internationally sourced inputs, accurate HS, and extended CN classifications are essential not only for smooth logistics but also for proper regulatory compliance. As environmental and trade regulations grow stricter, the link between customs processes and sustainability reporting becomes increasingly important. 2.2. Global Supply Chains International trade puts significant pressure on companies to develop efficient and resilient global supply chains to navigate complexities such as geopolitical risks, regulatory changes, and market fluctuations. A global supply chain consists of a global network of actors, including suppliers, producers, manufacturers, retailers, and the end customer. Ultimately, the definition of a supply chain network is “a set of interconnected organizations that produce value” (van Donk, 2018). Generally, all supply chains are uniquely structured, with different geographical strategies, differentiated supplier networks, and distinctive competitive edges (Sabbaghi, 2011). Companies sourcing globally and utilizing international networks achieve benefits such as improved quality, cost reductions, access to newer technology, and a broader supplier base (Meixell & Gargeya, 2005). However, global supply chains also present certain risks and sustainability concerns. With global sourcing comes longer transportation of products, leading to an increase in GHG emissions (EPA, 2024). Moreover, the introduction of new legislative directives and regulations related to emissions presents additional challenges for global supply chain actors (Meixell & Gargeya, 2005). 2.2.1. Supplier Relations Supplier relationships are a fundamental aspect of modern supply chain management, directly influencing cost efficiency, product quality, risk mitigation, and overall competitiveness. Effective supplier collaboration is underpinned by trust, transparent communication, and strategic information sharing, all of which are essential for enhancing operational resilience. This is particularly crucial in adapting to market fluctuations driven by shifts in demand or evolving regulatory requirements (Cousins et al., 2008). 11 Supplier integration, where firms collaborate in closer coordination with suppliers with the purpose of enhancing efficiency and innovation, is a key aspect of modern business models and supply chains. Flynn et al. (2010) highlight the relationship between supply chain integration and performance. Integration can take several forms between suppliers and buyers, such as cooperation in product development, joint innovation collaborations regarding operational processes, and shared sustainability initiatives. Firms that foster a greater level of integration and collaboration with their suppliers in the strategic decision-making process are more prone to experience improved adaptability and responsiveness when faced with shifts in the market (Handfield et al., 2015). One approach for firms to enhance cooperation and integration with their suppliers is through the adoption of collaborative supplier development strategies. These strategies involve offering support, training, and technological assistance to suppliers, enabling them to meet quantity and/or regulatory requirements. This approach is particularly effective in mitigating the risk of non-compliance with existing regulations (Krause et al., 2007). However, the dynamics of global supply chains significantly impact supplier relationships, as companies must manage geopolitical risks, new trade policies, and increasing sustainability regulations. To navigate these challenges, firms often face the need to balance cost efficiency with risk mitigation, which can be achieved through strategies such as diversifying supplier bases, a shift toward more local sourcing, or investments in digital supply chain solutions to improve transparency (Christopher, 2016). 2.2.2 Supply Chain Reconfiguration The decision to switch suppliers involves far more than a simple cost comparison (Friedl & Wagner, 2012). It represents a strategic trade-off between continuing to invest in existing supplier relationships and transitioning to potentially more compliant or cost-efficient alternatives (Friedl & Wagner, 2012). This aspect is often highlighted as a key feature that companies face when incumbent suppliers cannot meet and adjust to the evolving requirements on cost, quality, or environmental standards (Friedl & Wagner, 2012). In such scenarios, the buying party must decide whether to invest in supplier development, which i often a cost-intensive and time-consuming process, or switch suppliers, which instead might have higher upfront costs, and can also lead to operational disruptions (Friedl & Wagner, 2012) 12 One of the most significant hurdles and barriers in the way of switching suppliers is the aspect of costs (Farrel & Klemperer, 2007). These costs often include expenses related to market research, evaluating new suppliers, negotiating contracts, integrating new suppliers into enterprise systems, and adapting internal processes to align with new product inputs (Farrel & Klemperer, 2007). Furthermore, psychological factors such as fear of regret, status quo bias, and decision avoidance all play a part and can contribute to a reluctance of supplier switching, even if it might be preferable (Friedl & Wagner, 2007). This inactivity, or reluctance to change, can further be enhanced because the true actual costs, capabilities, or other factors might not be known, which in turn increases the perceived risk, and can once again cause passivity (Friedl & Wagner, 2007). When new suppliers appear more attractive from either a cost, quality, or environmental perspective, the buying organization must account for the incumbent suppliers' actions and response (Friedl & Wagner, 2012). Incumbent suppliers, as a response to the threat of switching, may reduce prices or improve other contractual terms that were perhaps not in place at a previous stage (Friedl & Wagner, 2012). This can, in turn, lead to the option of dual sourcing, where buyers source from multiple suppliers to diversify risk, leverage costs, and maintain competitiveness between the suppliers while still maintaining continuity with current suppliers (Friedl & Wagner, 2012). However, the effectiveness of strategies such as dual sourcing is often dependent on aspects such as economies of scale, contractual flexibility, and the buying party’s capability of managing multiple actors within the supply chain (Chun et al., 2010). The decision to reconfigure supply chains, either through switching of suppliers or dual sourcing, is influenced by a variety of aspects, as previously mentioned. Theoretical insights highlight the importance of both the tangible aspects and the intangible ones in making decisions related to it (Rehme et al., 2016). It is highlighted that supplier network reconfiguration is not only an operational aspect but also a strategic response to maintain alignment between the company’s objectives and external capabilities (Rehme et al., 2016). 2.2.3. Risk Risk is defined as “the probability of an outcome having a negative effect on people, systems or assets” (UNDRR, 2015). It is typically assessed based on the likelihood of occurrence and represents uncertainty that could lead to negative consequences. Risk 13 evaluation is a crucial part of strategic decision-making for companies (Ansyari, 2024). Risk is generally assessed through two criteria: 1. Likelihood of occurrence, meaning how probable it is that the risk will occur. 2. Potential impact and the severity if the risk materializes (Aven, 2015). In the context of supply chain management, risk can be defined as “the likelihood and impact of unexpected macro and/or micro level events or conditions that adversely influence any part of a supply chain leading to operational, tactical, or strategic level failures or irregularities” (Ho, Zheng, Yildiz, & Talluri, 2015). This definition highlights that risk in supply chain management is not limited to a single type of disruption but spans a range of potential challenges, from supply risk, material flow risk, sudden changes in demand, or natural disasters (Martin & Peck, 2004). Supply chain risk can further be categorized into internal and external risks (Manners-Bell, 2018). Internal risk can be divided into process- and control-related risks. Process-related risk refers to issues within internal operations and workflows, such as inefficiencies, human error, or system breakdowns (Manners-Bell, 2018). Control-related risk, on the other hand, is associated with a lack of adequate governance or oversight, such as weak policies or insufficient management controls. While internal risks are significant, the external categories outlined in Figure 1 are particularly relevant in the context of global operations, given their connection to broader networks and external dependencies. External risks can be further divided into two levels. The first includes risks external to the firm but internal to the supply chain network, such as disruptions caused by suppliers, vendors, or logistics partners (Manners-Bell, 2018). The second comprises risks that are external to both the firm and its immediate supply chain, yet still affect operations, these include geopolitical events, regulatory changes, and macroeconomic volatility (Manners-Bell, 2018). Within this broader category of external risk, Manners-Bell (2018) further distinguishes between supply-side and demand-side risks. Supply-side risks stem from dependencies on upstream partners and global sourcing networks. These risks include supplier unreliability, lack of transparency, geopolitical instability, and capacity constraints. Such factors can affect material availability, lead times, and the overall continuity of supply (Manners-Bell, 2018). 14 In contrast, demand-side risks are linked to shifting customer expectations, technological change, and market volatility (Manners-Bell, 2018). These risks may manifest through sudden changes in consumer preferences, unpredictable demand fluctuations, or evolving sustainability expectations (Manners-Bell, 2018). Firms must be able to adapt quickly in response to these developments in order to maintain competitiveness and meet market demands (Manners-Bell, 2018). Together, these supply- and demand-side risks highlight the importance of strategic flexibility, robust risk management practices, and adaptive supply chain design in order to maintain resilience in an increasingly complex global environment. Figure 1: Internal and External Risk Source: (Adapted from Bell, 2018, originally from Mason-Jones & Tolwill, 1998). 2.2.3.1. Risk Mitigation Strategies Every company has to deal with supply chain risk, especially in today’s interconnected world, where a single disruption can send ripples through an entire operation (Li et al., 2021). That’s why having a solid risk mitigation strategy is crucial. It helps businesses stay resilient and prepared for the unexpected (Li et al., 2021). Diversifying suppliers is one of the most effective ways to reduce supply chain risk (Golmohammadi & Hassini, 2020). Relying too much on one supplier or region can be risky. If something goes wrong, like a natural disaster, a political issue, or a factory shutdown, it could halt operations entirely. By sourcing from multiple locations or considering 15 nearshoring, companies can make their supply chain more flexible (Fernández-Miguel et al., 2022). Supply chain visibility is another crucial aspect of how companies tackle uncertainty in their operations (Caridi et al., 2014). Technology like real-time tracking and AI-powered analytics can help companies monitor supplier performance, anticipate delays, and react quickly to problems before they escalate (IBM, n.d.). The more transparency a company has in its supply chain, the easier it is to prevent disruptions (Caridi et al., 2014). Furthermore, building strong relationships with suppliers is also crucial to mitigate risk. Long-term partnerships create trust and stability, which can be valuable when challenges arise (Sahay, 2003). For instance, suppliers might be more likely to prioritize businesses and companies with which they have a solid relationship when demand spikes and uncertainties arise (Sahay, 2003). Flexible contracts that include risk-sharing elements, like dual-sourcing agreements or adaptive pricing, can also help businesses stay protected (Ghadge et al., 2016). Risk scenario planning and crisis management help companies prepare for worst-case situations, whether it’s a sudden spike in raw material costs, a global shipping delay, or an economic downturn. Running stress tests and having clear contingency plans in place can make all the difference when facing uncertainty. Furthermore, by adopting and utilizing correct risk mitigation strategies, companies are better equipped to tackle the global business landscape and the uncertainties surrounding it. 2.3. Governance and Organizational Coordination The ability to coordinate and collaborate across functions and departments are essential aspects for achieving organizational success. Coordination, collaboration, and effective leadership are all aspects that play crucial roles in creating processes, clear communication, and driving strategy. In large, global, often decentralized organizations, these concepts are particularly important (Castañer & Oliveira, 2020). This is because alignment, responsibilities, and team dynamics become more complex the larger the company gets (Castañer & Oliveira, 2020). Coordination refers to the process of aligning and integrating the efforts of individuals, teams, and processes within an organization to achieve or reach a common overarching goal (Jucevičius & Jucevičienė, 2022). In large corporations, the structure is 16 often decentralized, meaning responsibilities are shared across departments, managers, and other functions. This makes coordination more complex and can often be something which is lacking in organizational efforts (Jucevičius & Jucevičienė, 2022). Without effective coordination, organizations pose the risk of inefficiency, misalignment of responsibilities and expectations, and delayed decision-making (Castañer & Oliveira, 2020). Aspects that can all affect the organization negatively. Collaboration is closely tied to coordination, but extends beyond merely aligning efforts to actually working actively toward a common shared goal (McLellan, 2023). It is often emphasized that fostering a work environment where collaboration thrives and a culture where teamwork, trust, and shared problem-solving are integral can significantly enhance organizational performance (McLellan, 2023). Collaboration is particularly critical in organizations where expertise and resources are distributed across various departments or geographic locations (McLellan, 2023). The integration of skills, knowledge, and perspectives can help with enhancing and promoting innovation, help with decision-making, and also with the execution of tasks (McLellan, 2023). However, effective collaboration also depends on the prevalence of a collaborative framework, which includes various mechanisms for communication, knowledge-sharing, and conflict resolution. When collaboration is fragmented or hindered by organizational silos, it can lead to missed opportunities, duplication of effort, and suboptimal performance (McLellan, 2023). Furthermore, formal leadership plays a central role in coordination and collaboration by guiding teams and aligning efforts across departments (Carter et al., 2020). Traditional leadership models often emphasize centralized leadership structures, where responsibility and management are focused on a single point (Bolden, 2011). However, today the concept of distributed leadership is a concept which is more popular, and has become more incorporated in modern organizations (Bolden, 2011). This approach empowers individuals to make decisions based on their expertise and responsibilities, fostering a more adaptive and responsive organizational culture (Bolden, 2011). Additionally, effective coordination, collaboration, and leadership require clear accountability, as individuals and teams must understand their roles and be responsible for their tasks and outcomes. Clearly defined roles are essential, as unclear responsibilities can lead to confusion, inefficiency, and delays. Therefore, combining distributed leadership with well-established accountability is crucial for effective organizational performance (Nduati, 2022). 17 2.4. Carbon Border Adjustment Mechanism (CBAM) The CBAM regulation was first proposed by the European Commission on July 14, 2021. Its primary purpose is to ensure that the EU's climate targets are not undermined or circumvented by relocating carbon-intensive production processes outside EU borders (Simões, 2024). CBAM requires sufficient reporting of the total carbon emissions embedded in the production of certain goods, whether the production has been within or outside EU borders when imported to the EU. The regulation mandates importers of goods covered by CBAM to buy certificates equal to the carbon price charged on production within the EU (European Commission, 2025). Although not yet fully implemented, CBAM has, since October 1st, 2023, entered its transitional phase, intended to be active until its full launch in 2026. The transitional phase aims to aid companies in the operational processes required for the full implementation, while also working as a pre-determining, forecasting opportunity for the evident costs of the regulation. This period requires companies to report the GHG emissions related to the production of imported products while not having to pay for certificates (European Commission, 2025). When implemented in full scale, the certificates related to CBAM will be bought from the national authorities, depending on the country of import. The price of the certificates is calculated based on the weekly average auction price of EU ETS allowances (European Commission, 2025). The EU ETS establishes the price of carbon emissions based on a “market-based mechanism,” meaning that the price is essentially rooted in the market price of the cap and trade system of carbon emissions already active within the EU (European Commission, 2016). When importing CBAM-covered goods, the buyer within the EU will declare emissions and purchase the equivalent number of certificates on a yearly basis. 2.4.1. Scope of CBAM CBAM covers carbon-intensive goods from carbon-heavy industries, such as aluminum, cement, electricity generation, fertilizer, iron, and steel. By requiring companies that deal with the aforementioned goods to report the embedded GHG emissions during production when imported into the EU, CBAM places additional strain on the reporting capabilities of suppliers to the importing parties. As a result, while CBAM is technically an EU regulation, its scope extends globally. 18 While not yet fully implemented, the number of goods covered by the CBAM regulation is expected to increase (European Commission, 2023). Industrial sectors, such as plastics, paper & pulp, and certain chemicals, are carbon-intensive in production and may be included in the regulation in the future, depending on their risk of carbon leakage and alignment with other EU climate policies. Moreover, CBAM is not only applicable to certain companies; it is valid based on the import volume of the covered goods. 2.4.2. CBAM Reporting Procedure & Requirements The steps that will be required amidst the full implementation of CBAM in 2026 include identifying goods subject to CBAM, reporting the value and the quantity of the goods, calculating embedded carbon emissions in the production of the imported goods, and submitting both quarterly and annual reports on the imported goods covered under the regulation (Naturvårdsverket, 2024). The reporting process is essential for the purpose of the regulation. The reporting process ensures transparency in outsourced production to allow for the correct pricing of certificates when the goods are imported into the EU market. Regarding pricing, the reporting process is especially vital considering its link to the earlier-mentioned pricing method, based on the EU ETS market-based mechanism. Non-compliance with the regulation, when fully implemented, is penalized through monetary fines (EY, 2023). The reporting process is integrated with current customs procedures within the EU through the use of CN codes. The CN codes are essential for the classification of goods and the determination of whether they fall within the scope of the regulation. For instance, certain steel products listed in Annex I of the CBAM regulation are required to follow the reporting process when imported to the EU (European Union, 2023). When imported, the type of goods, determined by the CN codes, the quantity, country of origin, and associated GHG emissions, are reported and submitted through the CBAM Transitional Registry. The CBAM Transitional Registry is a standardized electronic database set out to facilitate communication between the buyer, the European Commission, and national authorities. Moreover, the CBAM reporting process is designed to align with already existing customs procedures within the EU. The importer of CBAM-covered goods must ensure that the ordinary customs documentation matches the regulation-reporting requirements. 19 2.4.3. CBAM Certificate Calculations To understand the financial impact CBAM may have on importing companies, it is essential to grasp the components of the certificate calculation. The formula for determining the number of CBAM certificates to be surrendered is: CBAM Certificates = (Actual Specific Embedded Emissions – (CBAM Benchmark × CBAM Adjustment Factor) – ((Carbon Price Already Paid × Actual Embedded Emissions) / Price of CBAM Certificate)) × Amount of Goods The outcome of this formula represents the number of certificates that an importer must surrender for a given volume of imported goods. Each certificate corresponds to one tonne of CO₂ equivalent and is priced based on the EU Emissions Trading System (EU ETS). As of 2025, the average EU ETS price has been approximately €72.5 per tonne. The key variables in the formula include: Actual Specific Embedded Emissions (SEE): The verified CO₂ emissions per tonne of product, provided by the non-EU manufacturer to the EU importer. CBAM Benchmark: A baseline set by the EU, representing the average emissions performance of the top 10% most efficient EU producers. Adjustment Factor: A gradually decreasing percentage of the benchmark, designed to increase pressure on foreign producers to decarbonize over time. Carbon Price Already Paid: Any carbon cost already incurred in the country of origin, which can be deducted from the total if verifiable. In practice, due to the current transition phase and data availability, the actual implementation is simpler. Some variables are not yet enforced or published. Therefore, for the current reporting period, the formula can be simplified as: CBAM Certificates = Actual Specific Embedded Emissions × Amount of goods 2.4.4. Challenges and Global Implications of CBAM CBAM already mandates comprehensive reporting of emissions embedded in imported goods during its transitional phase. With the full implementation of the regulation, the administrative burden on companies importing covered goods is set to significantly increase as they strive to meet compliance requirements. Detailed emissions reporting and potential supply chain adjustments are required, and buying organizations will have to 20 enhance their relationship with their suppliers to receive the necessary information regarding the production of the goods (PwC, 2024). The administrative efforts will further impact the operational costs for the buying organizations, with the potential need for a compliance team explicitly working with CBAM-related questions. Moreover, import costs are set to increase with the need for companies to purchase CBAM certificates related to the emissions embedded in the goods. Any discrepancies in the reported data will lead to financial penalties, proving the necessity of accurate reports along all the steps in the supply chain. Ultimately, the cost of the goods will likely increase with increased import costs, a more considerable administrative burden, and reliance on accurate data from all non-EU suppliers. As a result, there are concerns related to the competitiveness of European-based actors regarding non-EU competitors that are not facing similar carbon costs. Since CBAM mandates complete reporting of emissions throughout the production process and imposes higher costs on importing covered products, carbon-intensive industries must undergo significant improvements to enhance sustainability and cost efficiency. Decarbonization strategies in, for instance, steel production will require substantial capital investments, including moving from traditional coal-based production to hydrogen-based direct reduction (H2-DRI) and carbon capture technologies. These advancements are projected to increase production costs by approximately 25% by 2030 and 56% by 2050 (Ellersdorfer et al., 2024; Rinaldi et al., 2024). Consequently, companies dependent on imported steel and steel products from non-EU suppliers will incur higher costs due to CBAM tariffs, creating both challenges and opportunities for exploring alternative sourcing strategies. Hence, a shift toward near or reshoring strategies could be incentivized by the implementation of the regulation (Rinaldi et al., 2024). Moreover, many of the major steel-producing countries, such as China, Russia, and India, still rely on coal-based steel production, where a shift toward greener technologies is too technically and financially challenging (Ellersdorfer et al., 2024). Consequently, without possible government incentives in the producing country, the increased costs associated with the implementation of CBAM might be passed on to the EU importers. The coerced shift to greener steel could ultimately reduce the availability of more cost-competitive steel import alternatives, with some non-EU suppliers exiting the European market as a result of the increased production costs (Ellersdorfer et al., 2024). Thus, this poses potential threats to the steel supply chain’s resilience and the overall market supply. 21 2.5. Analytical Framework and Research Questions This section covers and concludes the theoretical background, and establishes a structured framework that describes and highlights the impact CBAM has on global manufacturing firms, and the challenges that the companies face in tackling complex global regulations. This framework aims to conceptualize the subject while integrating theoretical concepts with real-world business operations. By doing this, a structured analysis of CBAM and its impact will discharge into a set of research questions that the report aims to uncover. Key theoretical areas influencing this study include international trade regulation, carbon pricing mechanisms such as the EU ETS and CBAM, and global supply chain management. These frameworks provide context for understanding how manufacturing firms must adapt their sourcing and operational strategies in response to CBAM and similar policies. Large companies engaging in manufacturing activities rely heavily on global trade and the possibility of securing raw materials and components across borders (Surugiu & Surugiu, 2015). CBAM functions as a market-based mechanism and regulation designed to prevent carbon leakage, which introduces new challenges in terms of trade restrictions, compliance costs, and geopolitical tensions for global companies (Simões, 2024). Theories covering the area of supply chain management often emphasize the importance of supply chain flexibility and how to mitigate the risk of global operations (Li et al., 2021). This highlights the complexity of balancing global operations with regulatory compliance. Furthermore, the increasing sustainability requirements and the impact of environmental regulations are, and will continue to be, ever more relevant to global supply chain decisions, as well as how companies shift their strategic focus to be compliant. Industries that are carbon-intensive are facing shifts and increased pressure as a consequence of new regulatory frameworks such as CBAM, and a geopolitical landscape where global tensions are increasing. This forces companies to re-evaluate strategies related to global sourcing and offshoring, and instead consider other options. Such options include supplier diversification and near-shoring (Ashby, 2016; Friedl & Wagner, 2012), as well as supplier switching, where firms actively replace high-emission or non-compliant suppliers with those that better align with requirements (Friedl & Wagner, 2012). These strategic shifts aim to minimize exposure to carbon tariffs and regulatory risks while improving stability against geopolitical and market disruptions. However, transitioning suppliers, especially in 22 complex manufacturing contexts, can pose challenges related to cost, quality assurance, contractual dependencies, and the availability of reliable alternatives (Friedl & Wagner, 2007). The theoretical background illustrates a broad picture of CBAM and the regulatory framework’s implications. However, when trying to apply these theories in practice, several contradictions arise. Literature surrounding CBAM highlights the aspect of the regulation being a practical framework for tackling the carbon leakage issue and promoting a more sustainable way of producing goods, as mentioned by Simões (2024). However, the actual economic impact it will have on multinational manufacturers is widely discussed, and it can be argued that the mechanism instead will have a negative impact on affected industries (Ellersdorfer et al., 2024). Furthermore, it is argued that although CBAM tries to promote sustainability, the compliance cost increases, and that it does not actually drive the meaningful changes that it is aimed at. Instead, the regulation could lead to costs that disproportionately affect industries that import products covered by the CBAM, hence reducing competitiveness and fairness in the global market (International Trade Council, 2024a). Supply chain adaptation and reconfiguration as a consequence of CBAM is another pressing issue for multinational companies. Strategies such as nearshoring and supplier diversification are effective measures to reduce risk (Fernández-Miguel et al., 2022); however, this does not take into consideration the possible financial and operational constraints and challenges that come with the varying strategies. For instance, while nearshoring might lead to a reduction in CBAM-related tariffs, the total cost might increase due to the magnitude of needed change, and aspects such as land and labor being more expensive in the country to which a company is nearshoring (Medarac et al., 2020). Transparency and regulatory compliance are two areas that present further challenges. Frameworks such as emission reporting frameworks or CSRD guidelines are aimed at increasing transparency in international trade (European Commission, 2025). However, suppliers outside of the European Union might lack the know-how or infrastructure to report in the correct way, hence generating extra costs for the buying company due to incorrect emission reporting (Calderaro & Levato, 2024). This highlights a significant challenge for importers, stemming from heightened external risk as defined by Manners-Bell (2018), thereby placing increased pressure on them. 23 Besides the challenges of reporting emissions, CBAM also makes customs procedures more complicated. Buying companies that import goods need to make sure they have the proper paperwork, including proof of emissions and correct tariff classifications, to comply with CBAM rules (European Union, 2023). Customs authorities will play a key role in helping enforce regulatory compliance, which in turn could lead to longer clearance times, additional administrative burdens, and higher costs for shipments that are deemed non-compliant (García-Vazquez & Simoes, 2023). Furthermore, discrepancies in customs valuation and classification of goods could lead to unexpectedly more significant financial impacts for many companies that rely heavily on international suppliers. These factors could add more layers of complexity to global supply chains and make trade compliance and customs optimization a crucial aspect of CBAM adaptation strategies. Regulations such as CBAM pose the risk of disrupting the entire global trade landscape due to aspects such as trade relations, unfairness, and retaliatory tariffs (International Trade Council, 2024c). For instance, countries that rely heavily on exports to the EU may face significant challenges under CBAM, and in response, could introduce countermeasures such as retaliatory tariffs or export subsidies (International Trade Council, 2024a). These dynamics add further complexity to the intersection of supply chain management and regulatory compliance, making long-term planning increasingly difficult for companies operating globally. The theoretical background provides an analytical framework, illustrated in Figure 2, that guides the analysis of CBAM’s impact on manufacturing companies and supports answering the research questions. The thesis will hence lay a foundation of potential ways companies can adapt to these new challenges, by offering guidance on how to deal with changing regulations while staying competitive in the global market. The framework, as depicted in Figure 2, illustrates how broader developments, such as international trade dynamics and environmental regulations like CBAM, filter down and shape the firm-level implications and strategies. It focuses on two key areas where these pressures take effect: in global supply chains and in how firms coordinate internally and externally. On the supply chain side, companies face practical challenges related to supplier relations, risk management, restructuring, and potential supplier switching. In parallel, effective governance, both within the company and in collaboration with external actors, is essential to respond to new regulatory demands. By connecting these elements, the 24 framework helps explain how firms adapt their strategies in response to regulatory change, and it supports the overall aim of this thesis: to explore the implications of CBAM on global manufacturing firms, with a particular focus on the importation of steel products into the European Union. Figure 2: Analytical Framework Illustrated Against this setting of regulatory change and shifting global trade dynamics, questions emerge about how manufacturing firms are responding in practice. Understanding how companies adapt their supply chains, internal processes, and broader strategies in response to mechanisms like CBAM is essential to grasp the regulation’s impact. To explore these issues in more depth, the following research questions have been developed: 1. What is the level of awareness of CBAM within a manufacturing firm, and what challenges does the firm face in relation to the regulation? 2. How will CBAM impact the cost of importing goods under the following scenarios?: Scenario 1: Using actual emission data from suppliers, Scenario 2: Using actual emission data from suppliers, with carbon costs accounted for in the country of origin, Scenario 3: Using EU reference emission data when supplier data is unavailable. 3. What strategic actions does contemporary literature suggest in order to mitigate the impact of CBAM? This framework and research questions will guide the empirical analysis, ensuring a structured approach to evaluating manufacturing firms’ responses to CBAM. 25 3. Method This study employs a dual-method approach to investigate the impact of CBAM on SKF’s supply chain. An empirical case study approach is applied to RQ1 and RQ2, combining qualitative interviews and quantitative internal data analysis. RQ3 is addressed through a scoping review of academic literature, offering strategic insights for CBAM compliance and mitigation. This integrated methodology ensures both practical relevance and academic rigor. 3.1. Research Design The study applies different methods to different research questions due to the distinct nature of the data required: an empirical case study for firm-specific insights (RQ1 & RQ2), and a scoping review for broader theoretical grounding (RQ3). A scoping review is a structured approach used to identify and synthesize key concepts within a specific field of study (Arksey & O’Malley, 2005). It is especially valuable for examining emerging topics, offering a wide lens on the current state of research (Munn et al., 2018). To ensure a robust and balanced perspective, the study combines qualitative and quantitative elements to provide a comprehensive analysis. A literature review establishes a theoretical foundation, while interviews with stakeholders in supply chain management, procurement, and trade compliance, as well as the scoping review, offer valuable insights into practical challenges. This triangulation of theory, empirical data, and expert insights enhances the validity and reliability of the findings, ensuring a balanced approach that integrates theoretical, qualitative, and quantitative perspectives (Yin, 2018). A qualitative design is effective for exploring in-depth stakeholder perspectives and uncovering challenges not immediately apparent through quantitative measures (Cresswell, 2014), while the quantitative design allows for the measurement and analysis of supply chain patterns and financial impacts that may not emerge through qualitative methods alone (Bryman, 2016). Qualitative research is especially appropriate for exploratory studies, as it provides the depth of understanding needed to develop meaningful, actionable recommendations (Flick, 2018). Building on these methodological foundations, for Research Questions 1 and 2, a mixed-method case study approach of the company SKF is utilized, combining qualitative 26 insights from interviews with key stakeholders within the case company and a quantitative analysis of internal company data. This approach is suitable for understanding the nuanced effects of regulatory changes on a manufacturing firm operating within a global supply chain. The qualitative research design enables the collection of insights into lived experiences from key informants, offering a deeper understanding of the practical implications of CBAM for SKF’s sourcing, procurement, and overall supply chain strategy. This is particularly valuable when the goal is to explore complex phenomena in a real-world setting, as qualitative research captures both observations and interpretations of regulatory challenges (Charmaz, 2014). In this study, the combination of stakeholder interviews and a scoping review facilitates a better understanding of both the operational challenges and strategic opportunities presented by CBAM. In terms of data collection, the primary method for Research Question 1 consists of interviews. Interviews allow for flexible and open-ended discussions that reveal participants' experiences and viewpoints (Kvale & Brinkmann, 2009). In-depth interviews are especially useful for capturing perspectives that may otherwise be overlooked, particularly in contexts where regulatory shifts constitute a significant concern (Patton, 2015). By engaging with employees from different departments within SKF, the study captures a more comprehensive view of how CBAM affects various parts of the supply chain. A quantitative approach complements the qualitative methods by incorporating internal data from SKF’s supply chain operations. By quantifying import volumes and CBAM-related cost variations under different scenarios in Research Question 2, this analysis provides measurable insights into the financial and operational implications of CBAM. Integrating this empirical data strengthens the validity of the qualitative findings and contributes to a more holistic assessment of regulatory impacts (Bryman, 2015). Finally, addressing the broader literature perspective, for Research Question 3, a scoping review is conducted to systematically map the existing body of literature on CBAM mitigation strategies, providing a broader theoretical foundation for the study. Furthermore, the scoping review’s qualitative approach is well-suited to the objective of generating actionable insights for manufacturing firms navigating regulatory compliance challenges, particularly those associated with the full implementation of CBAM. 27 3.2. Data Collection & Analysis As described in the previous section, this study uses a multi-method approach, with distinct data collection methods applied to each research question. For Research Questions 1 and 2, data were collected through a case study of SKF, combining qualitative interviews with internal company data. For Research Question 3, a scoping review of academic literature was conducted. For a researcher to comprehend gathered qualitative data, the data needs to be contextualized. This necessitates that the researcher develop a comprehensive understanding of the underlying context, thereby laying the foundation for a rigorous analysis at the study’s conclusion. Hence proving the significance of implementing a structured and systematic data collection method (Collis & Hussey, 2014). The qualitative interview data were examined through a thematic analysis, identifying common patterns in perceptions of CBAM-related challenges within the case company. Quantitative scenario analysis was conducted using internal procurement and emissions data, applying CBAM cost formulas across three scenarios to compare the financial implications of different compliance schemes. Lastly, the scoping review findings were thematically categorized into six overarching themes based on recurring insights across the literature, facilitating structured interpretation of strategic mitigation approaches. 3.2.1. Data Collection for the Case Study For RQ1, primary data were collected through interviews with key stakeholders at SKF. The purpose of the interviews is to explore the level of awareness of CBAM within the organization, as well as to identify perceived challenges and opportunities connected to the regulation. 3.2.1.1. Interviews Interviews in this study followed a semi-structured approach. This format is particularly valuable for gaining deeper insight into specific contexts where a certain degree of prior knowledge already exists. Semi-structured interviews allow for flexibility in the conversation while still providing consistency across different interviews. In accordance with Yin (2018), interviews in case study research are best conducted as guided conversations rather than strictly structured question-and-answer sessions. 28 Conducting the Interviews The interviews aimed to gather primary data related to how SKF perceives and prepares for CBAM. Stakeholders were grouped into three categories: 1. Procurement & Supply Chain Management 2. Sustainability & Compliance 3. Finance & Risk Management In total, 6 interviews were performed either in person or on Microsoft Teams, each lasting around 30-45 minutes. Participants were selected in collaboration with SKF based on their involvement in CBAM-related activities. To ensure a diverse range of perspectives, a request for representation from different departments was made, reviewed, and approved. With participants' consent, some of the interviews were recorded and transcribed for subsequent analysis. The purpose of the interviews was clearly communicated in the proposal sent to each participant prior to acceptance, ensuring informed and voluntary participation. Interview Themes and Key Questions The interview questions were categorized into four themes linked to the objective of the research, and can be seen in Appendix C. Table 1 depicts the themes, objectives, and a sample of the utilized questions. Table 1: Interview Themes, Objectives, and Questions. Theme Objective Questions Awareness & Assessing both the 1. How would you describe SKF’s awareness of Understanding awareness and CBAM and its requirements? understanding of 2. What internal discussions have taken place regarding CBAM CBAM compliance Challenges & Identifying the 3. What are the most significant challenges SKF Risks perceived challenges faces in preparing for CBAM? and potential risks of 4. How do you anticipate CBAM affecting SKF’s CBAM global trade? Opportunities & Identifying perceived 5. Does SKF see CBAM as purely a compliance Strategic opportunities and challenge, or are there potential advantages? Benefits potential benefits of 6. How might CBAM impact SKF’s competitive CBAM position? Preparation & Evaluating the 7. What concrete steps has SKF taken so far to Adaptation reparation and future comply with CBAM? Strategies mitigation strategies 8. How is SKF collaborating with suppliers to ensure compliance? 29 3.2.2. Data Collection for the Scenario Analyses For RQ2, internal quantitative data from SKF’s supply chain operations were analyzed. The aim was to estimate the financial impact of CBAM under different reporting scenarios. This data included product import volumes, emission data, supplier origin, and carbon cost assumptions. Three distinct CBAM compliance scenarios were calculated: Scenario 1: Using actual emission data from suppliers Scenario 2: Using actual emission data, with carbon costs deducted based on the country of origin Scenario 3: Using EU reference values due to missing supplier data This method allowed for a scenario-based cost impact analysis utilizing SKF-specific data. Thus, offering insights into both the financial risks and strategic implications of CBAM. By applying the regulation’s formula and current EU ETS carbon pricing to different formulas, the quantitative results supported the evaluation of cost uncertainty and trade-offs. The formula applied to calculate the CBAM Certificate is derived from official EU publications and is presented as follows (European Commission, 2024): CBAM Certificates = (Actual Specific Embedded Emissions – (CBAM Benchmark × CBAM Adjustment Factor) – ((Carbon Price Already Paid × Actual Embedded Emissions) / Price of CBAM Certificate)) × Amount of Goods Although, as of the time of writing, the European Commission has not yet published official CBAM benchmark values for this product category. In the calculations, the EU default values (3.27 tCO₂ per tonne) are used as a proxy to estimate the CBAM benchmark values. While this is likely an overestimation, the actual CBAM benchmark will be based on the emissions intensity of the top 10% most efficient EU producers, and therefore expected to be lower. The purpose of this estimate is to illustrate the methodology and compare cost outcomes across scenarios. Even if a lower benchmark were applied, the direction and relative difference between scenarios would remain similar, as the calculations are structured to reflect incremental costs per tonne of emissions above the benchmark threshold. 30 3.2.3. Data Collection for the Scoping Study For RQ3, a scoping review is utilized to systematically map existing literature on CBAM's impact on international trade and manufacturing companies. A scoping review is a methodological approach used to map existing literature on a specific topic and identify key concepts, research gaps, and evidence available in the field (Arksey & O’Malley, 2005). Unlike a systematic review, which focuses on a narrowly defined research question and critically appraises study quality, a scoping review provides a broader overview of available knowledge. In this study, the scoping review summarizes literature relevant to the impact of the CBAM on global supply chains and international trade for manufacturing companies. The insights gained will complement the case study approach by offering a broader context on the implications of CBAM in academic and industry discussions. The scoping review was conducted following the five-stage framework proposed by Arksey and O’Malley (2005), which includes identifying the research question, selecting relevant studies, charting the data, collating and summarizing findings, and reporting results. 1. Identifying the Research Question A scoping review starts by defining a research question. This research question will guide the strategy, and it is essential to identify key aspects such as scope and outcomes to ensure a structured approach. For this study, the scoping review is aimed at exploring literature on the implications of CBAM on manufacturing companies and international trade. A special focus on costs, supply chain complexity, compliance challenges, and mitigation strategies will hence be analyzed. Initially, a broad approach was adopted to ensure comprehensive coverage of the subject and to capture a wide range of perspectives on CBAM. However, as the study progressed and a deeper understanding of the topic was gained, keyword filtering was applied to refine the search and ensure more specific and relevant results. With all this in mind, the research question could be defined. The research question of ‘’What actions, based on existing theories related to international trade and supply chain management, can SKF adopt to mitigate the impact of CBAM?’’ was created to analyze the impact CBAM will have on a company's international trade and overall operations. The research question brings up costs as a factor to analyze, which CBAM clearly will have a direct impact on, but it also brings up complexity. In the context of this research question, 31 complexity is defined to include aspects such as increased administration work required as a consequence of CBAM, implementation of new processes, complexity of cross-functional collaboration, and other similar aspects that are affected when changes are made to an organization. 2. Identifying Relevant Studies The goal of the scoping study is to be thorough in identifying studies and reviews that are central to answering the research question, subject to the scoping study. In this stage, a strategy for how relevant studies are retrieved is identified, and criteria for inclusion and exclusion for the literature are included. The goal is to retrieve relevant literature that is applicable to the research question. Selection of Databases: To achieve this, a strategy of literature searching primarily from electronic sources and databases is used. Electronic databases provide bibliographic details and abstracts of published works. Before beginning this stage, it is important to consider factors like which databases to search, relevant terms to include, testing and refining the search strategy, and the availability of accessing databases. For this study, Scopus and Web of Science were chosen as the sources to retrieve academic literature. The reasoning behind this was that these two electronic databases are generally considered the two largest and two of the most reliable, hence increasing the reliability of the study. Inclusion & Exclusion Criteria: To decide what studies are deemed relevant enough to be included in the study, a set of inclusion and exclusion criterias was applied. The criteria can be viewed in in Appendix A. Keywords: Furthermore, to be able to find literature relevant to the study, and in the context of CBAM having an impact on manufacturing companies and international trade, two sets of keywords were identified. These two sets were chosen because of their broad nature, allowing for a larger scope of literature, while still maintaining the essence of what is to be investigated. Second, the sets of keywords fit the nature of the research questions in a satisfactory manner, hence enabling a nuanced approach and compatibility for the study. 32 Keyword Set: CBAM OR “Carbon Border Adjustment Mechanism” AND “International Trade” OR “Global Trade” The first set of keywords is aimed at investigating the impact and effect CBAM will have on international trade. The motivation behind the keywords is to capture a wide range of studies that explore both the direct and indirect consequences of CBAM on global trade dynamics and policies. This set was designed to include studies that address the broader implications of CBAM, including how it may alter trade flows, affect market competition, and influence the behavior of companies operating in different regions. By using both "CBAM" and "Carbon Border Adjustment Mechanism," the search ensures that various terminologies and naming conventions are covered, maximizing the scope of relevant literature. Number of Studies Retrieved: The combination of keywords applied in Web of Science resulted in the retrieval of 44 scientific articles. Simultaneously, when the same set of keywords was applied to Scopus, a significantly larger number of results were generated, totaling 69 articles. This discrepancy suggests that Scopus provides a broader range of sources or indexes a wider variety of journals compared to Web of Science. Furthermore, it could be noted that articles that were prevalent on Web of Science could also be found on Scopus. However, the reverse was not true. 3. Study Selection After relevant studies have been selected, the next critical step in a scoping review is to screen and select which studies are relevant and meet the predefined inclusion criteria. For this section, it is important to evaluate each study in order to assess its relevance to the overarching research question and ensure that they are aligned with the parameters set for the study. Furthermore, exclusion and inclusion criteria are a simple yet effective way to weed out literature that is deemed as irrelevant, and hence focus on literature which is actually related to, and can help answer the research question, subject to the scoping review. The study selection process was started by screening all 90 unique articles retrieved from the set of keywords from both Scopus and Web of Science. All retrieved articles were initially screened by reading their titles and abstracts. By doing this and applying the inclusion and 33 exclusion criteria previously decided upon, the number of articles that were deemed relevant was concluded to be a total of 24. However, three of the articles were not complete works, meaning the actual content was missing; hence, those had to be removed. One article, titled Strategic Comments and published by the Taylor & Francis Group, was excluded due to missing author information. As a result, the final number of articles included in the study was 20. 4. Collating, summarizing, and reporting results Following the study selection phase, a total of 21 articles were identified as relevant based on their titles and abstracts. Each of these articles was then read in full, and key points were independently noted and summarized by the reviewers. The purpose of this step was to extract insights that could inform the research question and highlight perspectives relevant to the CBAM and its implications for manufacturing companies. After individually reviewing and summarizing the articles, the findings were collaboratively discussed. Through this process, six overarching themes were identified that were recurrent across the majority of the studies. These themes reflect the most prominent issues and insights discussed in the literature, and they served as a framework for organizing the extracted data. The themes retrieved were the following: 1. Trade and Economic Impact, 2. Supplier Management, 3. Sustainability Innovation, 4. Political Consideration & Aid, 5. Compliance & Regulatory Issues, 6. Supply Chain Realignment. The articles were subsequently categorized according to these seven themes in a summary in Appendix A, allowing for a structured comparison of findings and a clearer understanding of the key areas addressed by the existing literature. This thematic organization also facilitated the synthesis of results in the subsequent section of the review. 5. Report and Interpret Findings Following the completion of the scoping review, the findings will be systematically presented and interpreted in relation to the research question. The analysis will focus on synthesizing the extracted insights according to the themes identified in the previous step. Emphasis will be placed on highlighting patterns, contrasts, and theoretical alignments within the literature. 34 Special attention will be given to identifying research gaps, as well as areas where perspectives diverge or where existing knowledge remains limited. The findings will also be considered in relation to the accompanying case study, enabling a contextualized understanding of CBAM’s implications for manufacturing companies. This step aims to provide a balanced and nuanced synthesis of the literature, ensuring that the results are presented clearly and contribute meaningfully to the overall analysis and conclusions of the study. 6. Ethical Considerations Since this study is a scoping review of existing literature, no primary data were collected from human participants. As such, the primary ethical consideration relates to ensuring the accurate and responsible use of sources. All included studies were properly cited and analyzed to avoid misrepresentation of the different authors’ work. Additionally, efforts were made to ensure a balanced and unbiased selection of studies, with careful attention to include a broad range of perspectives, while still focusing on the research aim. 3.3. Quality of the Research The quality of research is measured by the validity and reliability of the study. Validity ensures that the research measures the correct concepts. Reliability establishes that the findings from the study are both consistent and replicable. While the two concepts are not necessarily related, the combination of both is still essential for ensuring a high-quality study. 3.3.1. Internal Validity Internal validity refers to how the study accurately establishes causal relationships (Gibbert et al., 2008). This research examines the impact of CBAM on a manufacturing company’s supply chain. Internal validity is thereby enhanced through triangulation. In this case, triangulation is the combination of qualitative and quantitative approaches to reduce potential bias and increase the overall robustness of the findings (Barratt et al., 2011; Eisenhardt, 1989). Moreover, the use of pattern matching in the data analysis between predicted outcomes, based on the theory, and empirical results obtained from the case study, ensures logical consistency (Yin, 2018). In research, logical consistency refers to the degree to which the findings of a study align with its theoretical framework and empirical data. 35 Thus, ensuring that the study's interpretations and conclusions are logically aligned with the evidence provided (Yin, 2018). Furthermore, the study aligns with existing regulatory compliance and supply chain risk frameworks to ensure internal consistency. Based on Voss et al. (2002), internal consistency refers to whether all parts of a study, meaning research design, data collection, and the analysis of the data, are aligned and support the objective of the study. Hence, enhancing the credibility of the findings. For our case study, stakeholders from different departments were interviewed to further strengthen the internal validity of the findings. 3.3.2. External Validity External validity refers to the generalizability of findings beyond the specific area of research or the case company studied. The implementation of CBAM affects all manufacturing companies importing regulation-covered products. The conclusions of this case study can be extended to the broader industry, as the research incorporates literature on the impact of regulatory implementations on supply chains. This approach aligns with replication logic, as it allows the study's findings to be compared with existing research on regulatory impacts, reinforcing their applicability beyond the specific case examined (Saunders et al., 2019). Moreover, while the case study approach puts the focus on a particular manufacturing company, its implications extend to other manufacturing companies operating in global supply chains, with the same regulatory exposure, a process known as theoretical generalization, where findings from a single case contribute to broader theoretical insights applicable to similar contexts (Eisenhardt, 1989; Yin, 2018). By focusing on steel imports, which are widely affected by the launch of CBAM, the results may be transferable to other manufacturing companies based in the EU, with similar supply chain structures and thereby similar compliance challenges. 3.3.3. Construct Validity Construct validity refers to whether the research and the findings measure what it is set out to measure (Collis & Hussey, 2014). This study utilizes several data sources, such as SKF’s internal supply chain data, interviews, and literature, to ensure diverse perspectives on the impact of the implementation of CBAM. Yin (2018) states that the utilization of multiple types of data and sources enhances the construct validity through triangulation, aiding in confirming the accuracy of the findings while reducing potential biases. The use of 36 interviews, company data, and literature ensures a more comprehensive and credible representation of the studied topic (Yin, 2018). For example, in RQ2, the cost scenarios were directly based on the official CBAM documents, ensuring complete alignment with regulatory requirements. 3.3.4. Internal Reliability Internal reliability concerns the consistency in the data collection and analysis (Bryman, 2015). The use of consistent methodologies, such as a structured interview guide and clearly presented data collection methods, ensures uniformity in responses (Yin, 2018). Moreover, documented procedures regarding the research process allow for reproducibility by other researchers, further enhancing the reliability of the study (Barratt et al., 2011). For this research, both authors were involved in conducting and reviewing the interviews and transcriptions, which minimized interpretation bias and maintained consistency in thematic coding. 3.3.5. External Reliability External reliability concerns the replicability of a study in a different setting (Collis & Hussey, 2014). Including a detailed methodological description of the processes within the study, such as the case study approach, interview protocols, and methods regarding the data analysis, enhances the replicability and, thereby, external reliability (Eisenhardt, 1989). Moreover, the use of standardized data collection methods, such as keywords or phrases in the literature search, specific interview questions, and analysis methods, improves the possibility of repeating the research to find the same results (Voss et al., 2002). Furthermore, the study considers the industry-specific factors related to the case company, while still providing insights that can be applicable to other manufacturers of similar structures, known as acknowledgment of contextual factors (Saunders et al., 2019). To support external reliability, detailed documentation of the interview approach, scenario assumptions in the cost model, and the scoping review process are included in the appendices. 3.3.6. Relation Between Validity and Reliability While validity and reliability are concepts that are not dependent on each other, the relationship between the two is needed to ensure trustworthy processes and results. As depicted in Figure 3, high reliability and validity are necessary to ensure that the study 37 measures what it is intended to, while also establishing that the results are consistent and reproducible. By combining qualitative interviews, quantitative scenario modeling, and a structured scoping review, this study balances these aspects and provides both depth and methodological transparency. Figure 3: Reliability and Validity relation Source: (Persson, 2016) 38 4. Industry Setting - The Steel & Bearing Industry This section aims to provide a thorough background of the steel industry and its role within global supply chains. It will cover key aspects such as steel production, significant global trade flows, and the industry's importance across various sectors, such as industrial and automotive. The section will furthermore cover the Swedish industrial company SKF Group. It will explore SKF’s operations, its reliance on steel imports, and how the company may be affected by changing regulations. Steel is one of the most essential materials in the global economy, forming the backbone of infrastructure, transportation, manufacturing, and energy systems (World Steel Association, n.d). Its strength, durability, and relatively low production costs have made it indispensable in modern development (World Steel Association, n.d). Steel is primarily composed of iron and carbon but often includes other alloying elements such as chromium, especially in high-performance applications like stainless steel (World Steel Association, n.d). Within this broader context, the bearing industry plays a vital role. Bearings are crucial components that reduce friction and support rotating parts in machines, ranging from automobiles and aircraft to wind turbines and heavy industrial equipment (Rejith et.al., 2023). Importantly, bearings are not only made from steel but are also key to the functioning of steel production machinery itself. In steel mills, bearings must endure extreme temperatures, high pressures, and constant operation. To meet these demands, bearing steel must be exceptionally hard, wear-resistant, and precisely manufactured, typically achieved by incorporating higher levels of carbon and chromium and using advanced heat-treatment techniques (Bhadeshia, 2012). Despite steel’s central role in industry, it is also one of the most carbon-intensive materials (Kim et.al., 2022). Steel production accounts for approximately 8% of global CO₂ emissions, with nearly two metric tons of CO₂ emitted per ton of steel produced in 2022 (Kim et.al., 2022). While steel is one of the most recycled materials in the world, capable of being reused indefinitely without loss of quality, significant sustainability challenges remain (World Steel Association, n.d.). Initiatives like ResponsibleSteel and SteelZero have emerged to promote more sustainable practices, yet industry-wide decarbonization has been slow. In response to these environmental challenges, the EU has introduced CBAM, a policy designed to address “carbon leakage,” where, as previously mentioned, companies 39 shift production to countries with less stringent climate policies. CBAM places a carbon price on imported goods, such as steel, aligning them with the carbon costs that EU producers face under the Emissions Trading System (ETS). CBAM is poised to reshape the global dynamics of steel-intensive industries. For global companies within steel and bearing industries, the implications are significant (Eurofer, n.d.). With CBAM, imported steel that doesn’t meet EU carbon standards will effectively become more expensive due to the carbon levy, increasing the pressure on companies to source lower-emission steel or invest in greener production processes. This shift could act as a catalyst for innovation and supply chain reconfiguration where decarbonization strategies and optimization, and supplier adjustment might occur (Weng, 2025). CBAM also introduces a new layer of regulatory complexity. Accurate emissions tracking, transparent reporting, and verifiable data will be required at every stage of the steel supply chain. For globally integrated companies, this presents both a compliance challenge and an opportunity to lead in the transition toward low-carbon manufacturing. In summary, the steel and bearing industries are at the crossroads of industrial necessity and environmental responsibility. CBAM underscores a larger shift in global trade and manufacturing, where sustainability is no longer optional but fundamental to competitiveness and long-term growth 4.1. SKF This chapter introduces the company subject to the case study. It starts with a general introduction of SKF’s history, followed by its organizational structure, area of business, strategy, and operational processes. SKF is a Swedish engineering company established in 1907, known for the invention of the self-aligning ball bearing by Sven Wingquist (SKF, n.d.). Since its founding, the company has become a global actor in the bearing and rotating equipment industry, operating in 129 countries with a distribution network of more than 17,000 partners and 29 remanufacturing facilities (SKF, n.d.). SKF’s products and services are applied across a wide range of sectors, including industrial machinery, automotive, aerospace, marine, agriculture, and renewable energy (SKF, n.d.b.). 40 SKF's product portfolio includes bearings, such as ball, roller, and super-precision bearings, alongside seals, lubrication systems, and related solutions (SKF, n.d.b). These components are central to reducing friction, enhancing energy efficiency, and ensuring smooth mechanical operation in various industrial and mobile applications. Supporting technologies for monitoring, maintenance, and digital integration are also part of the company's offering, contributing to improved system reliability and reduced downtime (SKF, n.d.b.). The production of bearings and related components relies heavily on steel, which accounts for approximately 95% of the total product weight. Consequently, steel procurement represents a significant factor in the company’s environmental impact. In response, SKF has introduced initiatives to lower the carbon intensity of its supply chain, including a target to source 40% of its steel from net-zero steel producers by 2040 (SKF, 2024). Additionally, the company is engaged in collaborative efforts such as SteelZero and the ResponsibleSteel Initiative, both of which promote sustainable steel sourcing and the reduction of carbon emissions in industrial supply chains (SKF, 2024). The introduction of CBAM is expected to have implications for companies like SKF. For SKF, which operates a global sourcing model, CBAM may result in higher costs for steel and components imported from regions with less stringent emission regulations. This regulatory development is likely to increase the importance of traceable and verifiable emissions data from suppliers, while simultaneously accelerating the transition toward low-carbon sourcing strategies. SKF’s procurement model is structured around performance and sustainability. The company collaborates with a vast network of suppliers and subcontractors, guided by a Code of Conduct that includes environmental, social, and ethical criteria (SKF, n.d.c.). Supplier performance is monitored through audits, risk assessments, and key performance indicators (KPIs), and SKF engages in continuous development activities with suppliers to improve quality, reliability, and environmental outcomes (SKF, n.d.c.). Sustainability considerations, particularly carbon emissions and resource efficiency, are increasingly prioritized within supplier evaluations and material sourcing decisions (SKF, n.d.c.). In terms of organizational structure, SKF is divided into three primary business areas: Industrial, Independent & Emerging Businesses, and Automotive. These segments operate 41 across all regions, supported by a global management structure (SKF, 2024b). The Industrial segment comprises the majority of the company’s operations, serving a broad spectrum of applications from heavy industrial machinery to smaller mechanical components. Independent & Emerging Businesses include areas of growth such as marine systems, aerospace, and agricultural solutions. The Automotive division focuses on products and systems for both internal combustion and electric vehicles (SKF, 2024b). However, as of 2025, it is undergoing structural separation into an independent entity. SKF’s approach reflects an ongoing adaptation to changing industrial, environmental, and regulatory conditions. The company continues to technologies to improve efficiency and operational performance. In parallel, initiatives to reduce environmental impact, particularly through more sustainable sourcing practices, are central to aligning operations with evolving climate regulations like CBAM. In this context, the implementation of CBAM reinforces ongoing shifts within SKF’s supply chain management and sourcing strategy. The regulation not only introduces potential cost implications but also strengthens the regulatory and market drivers for emissions transparency and decarbonization across the steel and manufacturing sectors in which SKF operates. 42 5. Findings This chapter presents the empirical findings of the study. It includes insights from the qualitative interviews, the results of the quantitative scenario-based cost calculations, and a summary of key theoretical insights derived from the scoping review. Together, these findings address the three research questions and provide a foundation for the subsequent analysis and discussion. 5.1. SKF’s Awareness and Perceived Challenges of CBAM The following subsections present the results from the conducted interviews, structured according to the main themes of the interview questions. Each theme reflects a key area of relevance in relation to the research questions and the analytical framework. 5.1.1. Awareness & Understanding of CBAM The interviews with personnel in several key functions at SKF reveal multiple themes related to the awareness and understanding of the European Union’s CBAM and how it might impact SKF. These themes reflect the varying levels of awareness and clarity about CBAM requirements within the organization across different levels. The interviews highlighted that, within SKF, there is a general awareness of CBAM. Multiple business departments are included in the processes of handling this up-and-coming regulation. However, there has been a sense of uncertainty on how to correctly address the topic and who should lead the project. One interview respondent mentioned that in case this is not addressed, this will cause a great deal of trouble when the regulation is actually in place, and that better guidelines going forward are desired. It was furthermore mentioned by one interviewee that SKF has been aware of the EU creating a regulation, such as CBAM or equivalent to it, since 2019. Even though CBAM was first drafted in 2021, there is a sense in the company of not being prepared for the implementation, even though SKF has known of it for quite some time. It was highlighted by another respondent that perhaps the company has not really cared that much about the regulation so far, since the regulation is yet to impact the company cost-wise. The respondent furthermore mentioned that the organization is very cost-driven, and that not until the cost becomes very apparent will the company probably react. This indicates a very reactive 43 approach compared to being proactive, and something which can once again cause disturbances further down the road. Within the company, there has been a delay in deciding which unit would handle CBAM and compliance with the regulation. Currently, the responsibility for CBAM has fallen on the group sustainability and group international trade teams due to CBAM being naturally connected to both. However, one respondent expressed frustration over how responsibilities have been divided, noting that the guidelines remain unclear for units that are outside the group trade and sustainability units. This is because CBAM affects SKF legal units, e.g., SKF Germany, differently; hence, an overarching project group without involvement of local teams is viewed as insufficient, one interviewee claimed. While SKF is aware of CBAM at a high level, there is, as mentioned, a lack of understanding about the calculations and responsibilities on a more micro level. Discussions have so far mainly been focused on gathering information from purchasing and local customs teams, but there is uncertainty about their responsibilities and the long-term way of working with the regulation. The need for greater involvement with suppliers to ensure accurate and efficient reporting is emphasized. In addition to this, SKF is in turn a supplier to their customers, however, it was mentioned that this point of view is severely lacking in the discussions related to the framework, indicating an unpreparedness which has been brought up previously. Regarding direct materials and factory impact, awareness of CBAM is strong in certain countries. This is mainly thanks to the efforts of certain individuals within the organization. A portion of the interview respondents highlighted that data integrity and the collaboration and coordination between business functions are two aspects that are significantly challenging. It is thought that a centralized and automated system to collect data from suppliers would make the process much more transparent and easier to track. However, others argued that local processes are more effective, as CBAM impacts each legal unit differently depending on the country. According to one interviewee working in procurement, the level of awareness within SKF regarding CBAM is quite good compared to benchmark companies, but the complexity and difficulties in gathering and analyzing information remain. However, this point contrasts with what other interviewees have mentioned regarding awareness. SKF has put in place a 44 structure to address compliance issues and is evaluating the impact upstream and downstream. Several teams across different levels of the organization are impacted and interacting with the CBAM process, which once again highlights the need and increased desire for strategic coordination. 5.1.2. Challenges and Risks with CBAM Compliance One of the main challenges identified through the interviews is the differing regulations across different countries in which SKF operates. Which, in turn, complicates a number of aspects. For instance, obtaining emission data from suppliers outside the EU, including SKF units in countries outside the EU, is seen as particularly challenging. This is because there is often a lack of understanding as to why this work is needed and how the data should be presented. Despite repeated requests, the necessary data has not been received in several instances, which in turn poses a huge risk to compliance. Accurate data collection from suppliers is seen as the biggest issue at this stage of the CBAM process. SKF has reached out to both internal, meaning other SKF legal units, and external suppliers regarding CBAM compliance, however, with very varying results. This is a major gap given SKF's reliance on external suppliers. This once again highlights the risk of non-compliance due to insufficient supplier data, in addition to the complexity of the reporting requirements. The extensive reporting requirements and administrative burdens are significant challenges. CBAM adds more work for the customs department, since they are the units that will be responsible for reporting to the EU, requiring extensive reporting and data collection efforts. There is also concern about the administrative burden on teams and the need for EU-level simplifications to ease the reporting process. There is uncertainty about what exactly customs teams are supposed to report in case there is a lack of data, or data is missing completely, and also who should be responsible for CBAM compliance. The need for greater involvement with suppliers to ensure accurate data collection is emphasized by several interviewees, along with the lack of focus on CBAM within SKF, indicating that there needs to be clearer guidelines coming from higher levels of the organization. This can indicate a risk of inefficiency and potential non-compliance due to unclear responsibilities and subpar cooperation. Furthermore, for the customs department to report correctly, all the data should already be presented in a correct form. However, it is 45 unclear at the moment what unit should actually be responsible for this, something which is mentioned as a big issue going forward. The need for a strategic approach to manage compliance and anticipate potential impacts is critical. The complexity and difficulties in gathering and analyzing information are highlighted, along with the importance of engaging resources and having the right structure to address requests without being overwhelmed. There is also mention of the risk of non-relevant data spreading through the system, which could undermine the credibility of CBAM reports. 5.1.3. Opportunities and Strategic Benefits of CBAM Compliance within SKF The interviews further showcased themes related to opportunities with the upcoming need for CBAM compliance, such as internal advantages for the organization itself. CBAM's potential in highlighting the need for innovation within the organization and being a necessary drive towards a more sustainable future for the company was brought up. Although some doubt exists about the near-term impact, the long-term positive effect of CBAM is evident, both regarding greener supply chains and the possibility of using the regulation as a KPI for sustainability metrics. Thus, suggesting that CBAM could contribute to the overall sustainability goals of SKF. Moreover, improved supplier engagement and greater transparency within both the internal and external supply chain were highlighted as a potential effect of CBAM. The need for accurate data reporting and sharing is expected to increase both the traceability and transparency between suppliers and customers. Furthermore, aligning with the requirements of CBAM presents opportunities regarding the competitiveness of SKF. The sourcing of greener products and a reduction of carbon emissions embedded in the production of those, if achieved properly, could enhance SKF’s reputation among customers, thus differentiating its product category from its competitors. Ultimately, the need for a structured approach toward CBAM compliance is considered critical. The optimization of information flows while minimizing non-value-added activities was described as essential in mitigating the impact of the regulation. 46 5.1.4. Current and Future Preparation Strategies for CBAM Compliance within SKF A key strategy put forward toward potential compliance issues is the creation of a structured, internal approach. According to the interviews, SKF has established a framework to evaluate, summarize, define, and address specific requests. As noted by one interviewee, “We have put in place a structure to address the issues and concerns from a compliance point of view... evaluating the impact upstream and downstream... with multiple layers of teams impacted and interacting.” Moreover, the framework is also in place to collect and share information between departments, such as between factories. The involvement of category managers with the purpose of anticipating the risk of impacts in different scenarios is also highlighted. A strong emphasis is also put on supplier engagement and data collection. Increased communication with suppliers to receive data and ensure its accuracy is crucial for CBAM compliance. One interviewee emphasized, “The biggest challenge is getting suppliers to report data accurately.” Similarly, another interviewee noted ongoing difficulties, stating that “despite asking several times, we have not received the necessary data” from internal SKF units like the USA. While SKF has initiated conversations with internal suppliers, there is also an expressed need for the involvement of external suppliers. A proactive approach, prior to the full implementation of the regulation, will aid in the provision of the relevant information. Moreover, the topics of data integrity and management are also critical components in the CBAM process for SKF. The current manual process of data entry into various files, based on invoices, highlights issues of inefficiency and transparency. As one interviewee explained, “Right now, import data is entered manually based on invoice data, and this creates problems with both time, and transparency & traceability.” A centralized and more automated process to ensure both accuracy and efficiency in the management of received data would potentially aid in minimizing errors and improving the overall quality of CBAM reporting. Ultimately, the long-term strategies for SKF go further than pure compliance. As one interviewee described, “We aim to reduce Scope 3, Category 1 emissions by 30% by 2030... accelerating decarbonization efforts with proactive suppliers, especially in steel, which covers 85% of our purchasing spend and CO2 impact.” 47 5.2. Scenario Analysis The analysis is structured around three scenarios: one utilizing actual internal emissions data provided by SKF’s suppliers, the second one utilizes the deduction principle, and the third is based on the default EU reference values applied in cases where supplier-specific data is unavailable. 5.2.1. Scenario 1 For scenario 1, data from two distinct suppliers were gathered for calculations and analysis. The data collected includes import volumes, CN codes of imported goods, and Specific Embedded Emissions (SEE) in the production of the product. This information was then benchmarked against the EU reference values and applied within the CBAM calculation framework to estimate the total cost impact per supplier. As detailed in the methodology chapter, the CBAM benchmark used in the calculations is an estimate, based on the current EU default value, due to the absence of officially published benchmarks at the time of writing. From Supplier 1, SKF imported goods under the CN code 732619 in 2024. The CBAM benchmark and actual SEE for these products are depicted in Table 2. Table 2: CBAM Benchmark and SEE (Supplier 1), CN 732619. CBAM Benchmark SEE Supplier 1 (tCO₂/t) (tCO₂/t) Direct Emissions 2,65 0,5 Indirect Emissions 0,62 0,5 Total Benchmark 3,27 1,0 Source: (EU, 2021) Since the SEE from Supplier 1 falls below the CBAM benchmark, no CBAM certificates will be required. Moreover, as depicted in Appendix B, with the annually decreasing CBAM factor, the benchmark still remains above the SEE from Supplier 1 until 2033, indicating that if the emissions embedded in the production remain at the same level, no CBAM certificates will be needed for the product in the near future. With no CBAM certificates required, the cost after the implementation of CBAM in this specific scenario will be unaffected. 48 From Supplier 2, SKF imported goods under the CN Code 732690 in 2024. The SEE in the production of the product from Supplier 2 is above the CBAM Benchmark, as shown in Table 3. Under this scenario, CBAM certificates will be required following the full implementation of the regulation in 2026. Accordingly, the previously outlined formula is applied to estimate the number of certificates needed in the coming years, with the results presented in Table 4. Table 3: CBAM Benchmark and SEE (Supplier 2), CN 732690. CBAM Benchmark (tCO₂/t) SEE Supplier 2 (tCO₂/t) Total 3,27 4,0 Table 4: Required CBAM Certificates and Costs for Supplier 2 Year CBAM Adjusted Excess CBAM CBAM Cost Factor Benchmark Emissions Certificates (€) (tCO2/t) (tCO2/t) Required 2026 0,975 3,188 0,812 2436 176 610 2027 0,95 3,107 0,893 2679 194 228 2028 0,9 2,943 1,057 3171 229 898 2029 0,775 2,534 1,466 4398 318 855 2030 0,485 1,586 2,414 7242 525 045 2031 0,39 1,275 2,725 8175 592 688 2032 0,265 0,868 3,132 9396 681 210 2033 0,14 0,458 3,542 10626 770 385 2034 0 0,000 4,0 12000 870 000 To estimate the cost of the CBAM certificates, a benchmark price of €72.50 per ton of CO₂ was applied. However, as the price of carbon under the EU ETS is projected to increase 49 in the coming years, the actual annual costs are likely to exceed current estimates (European Commission, 2023; ICAP, 2024). 5.2.2. Scenario 2 Scenario 2 also takes into account if the supplier has already declared and paid for the emissions in the country of origin. To showcase an example for supplier 2, if the country of export/origin is South Korea, according to the frameworks of CBAM, if a carbon price is paid in the origin country, it is deducted from the total costs of the certificates. At the time of writing, that being April 2025, the cost of CO2/ton in the Korean ETS system equals USD 8.41 (€7.93). This furthermore means that the total certificate cost of what is laid out in Scenario 1 will be reduced significantly. For instance, in Scenario 1 for supplier 2, the total cost of importing to the European Union equals €176,610 in 2026. If the supplier has already paid a carbon price for each ton produced which will be exported into the European Union, the total cost in the origin country, which is to be deducted, is €92,800. This means that the certificate costs for scenario 1 will be reduced by the total cost the supplier paid in the origin country. The new cost of importing into the European Union under CBAM, with supplier carbon price already paid and accounted for, will therefore be: CBAM Certificates = ((4 – (3.27 × 0.975)) – ((7.73€ × 4) / 72.50€)) × 3000 = 1155.8 Total Cost = 1156 * 72.50€ = €83 810 5.2.3. Scenario 3 If supplier data were missing from either Supplier 1 or 2, the CBAM Default value would be used to calculate the required certificates. Thus, significantly affecting the amount of required certificates and thereby increases the cost. Instead of calculating the excess emission from the CBAM benchmark, the benchmark is used itself. Table 5 depicts the cost for the two different suppliers used in Scenario 1, if no data were available. 50 Table 5: CBAM Costs Without Supplier Data CN Code Import Volume (t) Applied CBAM Cost / Year Emissions/EU (€) Default (tCO2/t) Supplier 1 4000 3,27 948 300 Supplier 2 3000 3,27 711 225 5.3. Results of the Scoping Study This section will cover the results of the scoping study conducted for this study. The results are presented according to key themes that were retrieved in the study, and which can be found in full in Appendix A. 5.3.1. Trade and Economic Impact A significant number of the reviewed articles focus on the trade and economic impact after the implementation of CBAM, especially for countries exporting a large amount of products with higher carbon intensity, such as steel. The studies use a wide range of modeling approaches to examine the effects of CBAM on exports, welfare, and market & trade dynamics in both the EU and non-EU countries. Shuai et al. (2024) showcase modeling results indicating that CBAM will significantly negatively impact the welfare of large exporting countries. Countries with a high concentration of carbon-intensive industries are likely to face measurable economic pressure, which increases as the carbon price rises. Similarly, Zhu, Zang, & Zeng (2024) estimate that CBAM will impact at least 2% of total exports and around 1% of total production volumes in several developing countries. China, Russia, and Ukraine are expected to experience proportional welfare losses as a result of the regulation. Huang, Liu & Zhao (2022) investigate CBAM's effect on trade competitiveness for non-EU exporters, with a particular focus on China. They find that CBAM increases export costs and decreases competitiveness, and suggest that adapting trade structure and enhancing cooperation with the EU are essential strategies to mitigate these impacts. Li, Liu & Lu (2023) similarly examine CBAM’s effect on China’s steel exports to the EU. Their study shows that reducing embodied carbon emissions can lower tariff costs, and they argue that 51 more ambitious decarbonization strategies could improve China’s long-term competitiveness in the EU market. Tian et al. (2024) assess the potential impact of CBAM on the iron and steel trade, finding that the regulation will reduce both export volumes and prices of CBAM-covered products. They also report welfare losses and decreased cost-effectiveness for larger exporting countries outside the EU. In line with this, Yue et al. (2024) measure CBAM’s potential effect on macroeconomic indicators, such as GDP and total emissions. While changes to these indicators are marginal, the more considerable impact is observed in the upstream and downstream sectors linked to CBAM-covered goods. Exports of carbon-intensive products, such as steel and aluminium, are projected to decline under full implementation. By contrast, Ellersdorfer et al. (2024) offer a more positive view of CBAM’s role in the context of green iron and steel supply chains. They argue that CBAM may support market competitiveness for low-carbon steel and contribute to the steel industry's broader decarbonization. Korpar, Larch, & Stöllinger (2022) estimate that EU exports could also decline due to CBAM-related trade effects. In addition, they identify a potential increase in CO₂ emissions related to CBAM-covered industries within EU borders, raising questions about the regulation's intended effectiveness. Similarly, Ergdogu (2025) argues that the carbon pricing CBAM imposes on imports could reduce the international competitiveness of European companies, mainly due to increased costs and prices. Bellora & Fontagné (2023) further analyze the implementation of CBAM through the lens of European firms, especially those in energy-intensive sectors like steel and aluminium. They suggest that CBAM, while effective in addressing carbon leakage, could negatively affect EU companies by raising the cost of both carbon quotas and imports. Mehling & Jakob (2024) introduce the issue of export-related carbon leakage, where European goods risk being displaced by third countries by more carbon-intensive but cheaper alternatives. To prevent this, the authors propose potential countermeasures such as exemptions from the EU ETS, the continuation of free allowance allocation, or financial compensation mechanisms for vulnerable sectors. Kozarević, Baraković, Nurikić, & Ibrić (2024) examine how countries dependent on exports but lacking the industrial capacity to transform may be disproportionately affected by CBAM. These countries face significant competitiveness challenges, especially in the absence of targeted policy support. Likewise, Chen (2023) focuses on China’s manufacturing 52 sector, finding that CBAM is expected to reduce the price of Chinese exports, lower real GDP, and slightly decrease emissions in carbon-intensive industries. The study concludes that CBAM may function less as an environmental tool and more as a trade-restrictive policy. In addition to the modeled economic effects, some studies address how CBAM is perceived by the public and policymakers. Bayer and Schaffer (2024) investigate how public support for CBAM is influenced not only by its environmental objectives but also by expected economic consequences, including potential price increases, employment effects, and concerns about fair competition. They highlight that successful implementation may depend heavily on public acceptance. A related perspective is provided by Bayat, Oszalman, & Derindag (2025), who focus on Türkiye and argue that CBAM will increase production costs and lower demand for Turkish exports. These pressures, they suggest, could reduce trade volumes and produce broader economic impacts for non-EU countries with strong commercial ties to the EU. Lim et al. (2021) take a broader geopolitical perspective, warning that CBAM may lead to trade conflicts and retaliatory measures by non-EU countries. They argue that the mechanism could introduce trade distortions, increase costs, and destabilize global supply chains. Rather than adopting a regionally-focused protectionist tool, the authors advocate for a global carbon pricing regime as a more cooperative and effective alternative. 5.3.2. Supplier Management Bayat, Ozsalman, & Derindag (2025) discuss the potential impact CBAM might pose on Turkish suppliers and exporters. Suppliers will need to invest in greener technologies and increase production efficiency due to the increased costs for products as a consequence of CBAM. The diversification of export markets is brought up as a strategy to mitigate the impact of CBAM. Similarly, Bellora & Fontagné (2023) continue this discussion by focusing on the viewpoint of European suppliers and exporters, and claim that these actors risk being affected in a negative way. The authors highlight that European exporters may risk lagging behind as suppliers to third countries, as markets instead prioritise cheaper products from more carbon-intensive markets. Once again, cleaner production technologies and efficiency are aspects that are brought up as long-term strategies to increase competitiveness. Chen (2023) highlights the viewpoint of Chinese exporters and states that if greener production methods and energy efficiency are not addressed, Chinese exporters will face challenges in complying with CBAM and remaining competitive in global trade. This 53 argument is further developed by Li, Liu, & Lu (2023), who describe the importance of decarbonizing to maintain competitiveness for Chinese suppliers. Suppliers need to adapt by investing in carbon reduction technologies and improving production efficiency to reduce embodied carbon emissions. The study suggests that steel suppliers should focus on decarbonizing their operations to maintain competitiveness in both domestic and international markets. Michael A. Mehling & Robert A. Ritz (2023) present the significant challenge of suppliers performing resource shuffling, meaning that exporters only report, or shift the destination of, their cleaner goods to markets with stricter climate regulations, while continuing to sell higher-emission products to less regulated markets. Furthermore, the authors stress the necessity of close collaboration with suppliers to ensure accurate emissions reporting, noting the technical and administrative difficulties suppliers may encounter in providing such data. In a similar vein, Sabyrbekov & Overland (2024) focus on how some countries have a degree of innovation capacity in their production infrastructure, making them more aligned with the potential market changes implied by CBAM. Thus, suppliers located in more capable regions have a greater likelihood of continuing trade with EU-based companies, especially if they already follow stricter emission regulations. Additionally, the authors present a “CBAM Support Index” to identify regions where supplier collaboration on CBAM compliance is more likely to succeed. Key markets on the list include Japan, Korea, Vietnam, and South Africa. According to Zhu, Zhao, & Zheng (2024), a large proportion of developing countries face limitations in the infrastructure required for reliable emissions reporting. Strengthening these capabilities may serve to reduce welfare losses and sustain competitiveness in international trade. Finally, Kozarević, Baraković, Nurikić, & Ibrić (2024) indicate that suppliers in specific regions or countries may neither have the technical ability nor the resources to comply with the requirements of CBAM. The authors emphasize the importance of providing various forms of support, including targeted investments, to facilitate supplier adaptation. They also underscore the urgency of such support, given that the use of actual supplier emissions data will become mandatory by 2026. 54 5.3.3. Sustainability Innovation Bayat, Ozsalman, & Derindag (2025) argue that CBAM drives sustainability innovation and efforts by forcing industries to engage in decarbonization. The authors discuss the need to reduce carbon emissions from production in order to comply with CBAM requirements. They further argue that countries could implement their own ETS and carbon tax systems, if such systems are not already in place, to internalize the cost of carbon emissions and thereby encourage sustainability innovation. Similarly, Bellora & Fontagné (2023) claim that CBAM stimulates sustainability innovation by creating incentives for carbon-intensive industries to decarbonize. They argue that CBAM encourages both EU and non-EU countries to adopt cleaner production technologies, and they emphasize that phasing out allowances is necessary for the EU to achieve its ambitious sustainability goals. Ellersdorfer et al. (2024) focus on sustainability innovation within iron and steel supply chains. Like the previous authors, they argue that by imposing tariffs through CBAM, supply chains are pushed toward greener practices. By ensuring that imported goods bear the same carbon price as domestically produced goods, cleaner production technologies and renewable energy can be more easily adopted. However, the authors stress that renewable energy must be low-cost in order for CBAM to promote both sustainability and competitiveness. Huang, Liu, and Zhang (2022) suggest that CBAM can drive sustainability by reducing the cost of low-carbon production, increasing financial incentives, and penalizing high-carbon outputs. This approach encourages both producers and exporters to invest in cleaner technologies. Hubatka et al. (2024) also argue that phasing out free allowances and applying carbon costs to imports incentivizes carbon-intensive industries, such as the steel sector, to adopt more sustainable practices. The authors highlight that the CBAM transition will require strategic adaptations in production methods, including the implementation of new processes and the optimization of existing ones. They also underscore the importance of balancing economic viability with environmental innovation for CBAM to succeed without undermining competitiveness. From a Chinese perspective, Li, Liu, and Lu (2023) argue that CBAM will significantly impact China's steel exports to the EU. They propose accelerating the development of carbon reduction capacity and promoting the use of green certificates to 55 offset carbon tariffs. Their findings suggest that aggressive carbon reduction strategies and certification systems can mitigate CBAM-related cost pressures and help maintain competitiveness in the EU market. Lim et al. (2021) argue that CBAM has increased awareness around sustainability and heightened corporate attention to carbon reduction. They propose that if the revenue generated through CBAM were reinvested in environmental technology support for developing countries, it could improve global acceptance of the mechanism while fostering sustainability innovation. Mehling & Jakob (2024) claim that innovation support for industrial decarbonization is one of the most effective strategies for addressing export-related carbon leakage under CBAM. They argue that such support can reduce decarbonization costs, lower investment risks, and make mitigation technologies more accessible over time. While they acknowledge potential legal concerns related to subsidies, the authors suggest that carefully designed innovation aid can minimize such risks and promote fair competition between domestic and international producers. Sabyrbekov & Overland (2024) also contribute to this theme by highlighting the role of innovation capacity as a key factor for CBAM alignment. As part of their “CBAM Support Index,” they assess countries' innovation readiness, identifying the United States, Japan, and South Korea as having high potential for green technology development and better alignment with CBAM expectations. In line with this, Yue et al. (2024) emphasize the importance of policy in driving innovation, particularly for reducing emissions. Their study shows that domestic carbon pricing mechanisms can accelerate the shift from fossil fuels to electricity, thereby reducing embedded emissions in goods. The authors argue that carbon governance strategies can achieve emission reductions without harming national GDP or export volumes. Lastly, Zhu, Zhao, & Zheng (2024) highlight that investments in green R&D, the implementation of national carbon taxes, and technological upgrades are critical for exporters seeking to adapt to CBAM. They argue that without innovation in areas such as energy efficiency and emissions tracking, trade competitiveness will decline, particularly for carbon-intensive sectors like steel. The authors conclude that technological innovation is essential not only for compliance but also for maintaining long-term competitiveness in CBAM-regulated markets. 56 5.3.4. Political Consideration and Aid Bayat, Ozsalman, and Derindag (2025) argue that political support is essential in addressing the consequences of CBAM and in enabling countries to pursue sustainable development. They propose two domestic policy measures that could be implemented in Türkiye to mitigate the costs of CBAM: (1) the introduction of a national emissions trading system (ETS), and (2) a domestic carbon tax. Additionally, the authors emphasize the importance of supporting frameworks, incentives, and investments, both for Türkiye specifically and for developing countries more broadly. In a similar vein, Huang, Liu, & Zhao (2022) argue that governments can support producers and exporters through either active or passive responses. Under an active approach, financial incentives such as export rebates and subsidies for low-carbon transitions can help reduce CBAM’s negative impact on export competitiveness, especially in industries like steel and aluminum. In contrast, a passive approach with limited regulatory action would result in fewer incentives for change. The authors conclude that active government intervention is crucial for long-term benefits to both the production and export sectors. Chen (2023) reinforces this perspective by emphasizing the role of political and governmental support in China’s response to CBAM. The author argues that government subsidies will be essential to maintain the competitiveness of Chinese exports, particularly in steel, aluminum, and iron. CBAM is expected to reduce Chinese export competitiveness in these sectors, and therefore, governmental assistance will be necessary to improve their carbon efficiency. Chen (2023) further stresses that political support is key in balancing environmental goals with financial stability. Similarly, Mehling & Jakob (2024) argue that export-related carbon leakage under CBAM could be mitigated through government-backed measures such as export rebates. This viewpoint is supported by Bellora & Fontagné (2023), who also acknowledge the importance of state support in helping industries adjust to CBAM without compromising competitiveness. Bayer & Schäfer (2024) add another dimension by examining how public perception and domestic political economy influence support for CBAM. They argue that opposition from carbon-intensive industries could result in significant political resistance, potentially affecting the feasibility of CBAM implementation. In this context, governments play a key role in managing public perception and addressing concerns related to job losses and 57 economic competitiveness in affected sectors. Overland & Sabyrbekov (2022) approach the issue from a geopolitical angle by introducing the “CBAM Opposition Index,” which identifies countries likely to resist the mechanism, such as Iran, the USA, Ukraine, China, India, and Russia. The index is based on factors including trade dependency with the EU, carbon intensity, innovation capacity, and WTO dispute history. The authors suggest that the EU should prepare for such opposition by offering support mechanisms like technology transfers, particularly to smaller economies with limited innovation capacity. Tian et al. (2024) imply that welfare losses and decreased cost-effectiveness in key exporting countries could lead to negative political responses. These reactions may damage diplomatic relations and trade ties, particularly in sectors like steel. Yue et al. (2024) simulate various policy response strategies and find that international trade agreements and coordinated global carbon pricing can help mitigate such tensions. They note that protectionist responses are less effective and may further exacerbate resistance to CBAM. Finally, Kozarević, Baraković, Nurikić, & Ibrić (2024) argue that targeted financial aid and policy support for less developed countries are necessary to ensure fair competition under CBAM. According to their study, such support can help mitigate political opposition and facilitate smoother global acceptance of the mechanism. 5.3.5. Compliance and Regulatory Issues Bellora & Fontagné (2023) shed light upon the regulatory issues surrounding CBAM. They highlight key concerns about the framework’s compatibility with international trade rules, such as those created by the WTO, particularly in areas such as discrimination against non-EU countries regarding cost burdens and fairness. Additional aspects discussed include export rebates, which were excluded from the final proposition of CBAM due to their non-compatibility with WTO rules. Resource allocation and how revenues should be distributed are also topics of concern. The authors argue that CBAM’s implementation requires careful attention to regulatory compliance and fairness, especially in relation to global trade rules, to ensure its long-term success. However, Mehling & Jakob (2024) argue that the aforementioned export rebates could be considered illegal subsidies and must be handled with care going forward. 58 Li, Liu, and Lu (2023) also question the compatibility of CBAM with international trade law, arguing that the mechanism may violate key GATT principles, including non-discrimination and the Most-Favoured-Nation treatment. They argue that imposing carbon costs on imports from countries with less stringent environmental standards could be considered discriminatory, particularly if applied differently based on the carbon content of goods or production technology. This perspective is supported by Lim et al. (2021), who add that the unilateral nature of CBAM could lead other countries to view it primarily as a trade barrier. In a similar vein, Erdogu (2025) raises concerns about the regulatory and legal challenges that CBAM poses, particularly for developing countries. The authors discuss the administrative complexities and compliance burdens that could significantly impact non-EU exporters, especially in countries with underdeveloped regulatory systems. The authors also point to the risk of trade disputes due to perceived violations of WTO principles and argue that CBAM may be viewed as protectionist legislation, potentially leading to retaliatory trade measures. Mehling & Ritz (2023) critiques CBAM models that rely solely on default carbon intensity values, arguing that such approaches risk unfairly penalizing cleaner foreign producers by applying broad regional averages. As an alternative, the authors propose the use of an Individual Adjustment Mechanism (IAM), which would base emissions data on actual measurements from producers. Moreover, the authors warn of the risk of resource shuffling, where exporters may still produce and export high-emission goods but redirect them to markets with less stringent regulations. Hubatka et al. (2023) focus on the internal regulatory aspects of CBAM and emphasize the need for a flexible approach that allows industries to adapt to the evolving policy framework. The authors highlight the importance of aligning CBAM with the EU’s broader emissions reduction targets, emphasizing that legal and regulatory adjustments are necessary to balance economic competitiveness with environmental goals, especially in emission-intensive sectors like steel. Furthermore, they note that the phasing out of free allowances will create significant compliance challenges for companies within these industries. Overland & Sabyrbekov (2022) also raise concerns about CBAM’s potential conflict with WTO rules. In particular, they argue that the framework may contradict the principle of “Common But Differentiated Responsibilities (CBDR)” under the Paris Agreement. The 59 principle of CBDR acknowledges that countries differ in their capacities and responsibilities for addressing climate change. The authors further describe how compliance pressure could lead to protective trade behavior instead of constructive environmental action. Sabyrbekov & Overland (2024) acknowledge the general complexity of compliance under CBAM, particularly in the area of emissions tracking, which poses significant challenges for less developed countries. They suggest that targeted support for these countries will be necessary to reduce the compliance burden. Additionally, the authors highlight their CBAM Support Index, which identifies countries more likely to experience a smoother transition due to better alignment with CBAM requirements. Finally, Yue et al. (2024) point out that certain supply chain actors and governments perceive CBAM as a “green trade barrier.” The authors stress the need for improved compliance frameworks that can support stakeholders struggling with emissions reporting and administrative obligations, helping to ensure fair competition across global markets. 5.3.6. Supply Chain Realignment Erdogu (2025) highlights how CBAM will impact global supply chains and reshape the global trade landscape. The author claims that the regulation will likely change global trade patterns, especially for carbon-intensive goods such as steel. In order to meet evolving standards and requirements, supply chains can be reconfigured. However, for non-EU countries to remain competitive from a supply chain perspective, greener technologies and collaboration with European counterparts to establish common standards are key aspects brought forward. Both Hubatka et al. (2024) and Chen (2023) continue this line of reasoning, emphasizing the importance of collaboration between, for instance, Chinese and Indian suppliers and EU-based actors. They claim that only through cooperation can stakeholders adjust to stricter environmental standards and shifting trade dynamics. From a geopolitical perspective, Overland & Sabyrbekov’s (2022) CBAM Opposition Index identifies countries likely to resist CBAM based on factors such as innovation capacity and political alignment with the EU. The authors suggest that EU importers of CBAM-covered products may need to consider relocating their sourcing and production away from countries high on the index, namely Iran, the USA, Ukraine, China, India, and Russia. In contrast, Sabyrbekov & Overland (2024) present a CBAM Support Index, which ranks countries more likely to align with and cooperate on CBAM compliance. According to this 60 index, countries such as Japan, South Korea, and Vietnam show greater potential for policy alignment, innovation, and smoother collaboration, suggesting that relocating production to these countries may help companies reduce CBAM-related risk and ease regulatory adaptation. Korpar, Larch, & Stöllinger (2022) present modeling forecasts that show a decline in steel exports from both EU and non-EU countries. Their findings indicate a potential relocalization of production within the EU, as firms seek to avoid the cost of purchasing CBAM certificates. However, they also note that such shifts might paradoxically increase carbon emissions within EU borders, raising further questions about the environmental effectiveness of relocating production. Lastly, Kozarević, Baraković Nurikić, & Ibrić (2024) find that countries with low potential to adapt to CBAM may be phased out of EU supply chains. Their study reveals that nations unable to meet increasing demands from buyers, both in terms of embedded emissions and reporting requirements, may experience a significant decline in trade, particularly in sectors exposed to CBAM. 61 6. Case Analysis and Discussion The discussion builds upon the analytical framework established in section 2.5, which explored the implications of CBAM on global manufacturing firms. Theoretical insight on international trade, environmental regulations, and global supply chains provided a foundation of knowledge of how companies engaging in the international landscape navigate the complexity of global business and its related aspects. There is a complex intersection of operational efficiency, financial profits, and sustainable transformation, all of which need to be balanced in today's business world, and will continue to be ever more critical due to the implementation of CBAM. The framework also problematized the gap between theoretical expectations and practical business realities, highlighting that strategies such as nearshoring or emissions reporting may face significant operational and financial constraints. Moreover, it highlights the intended goals of CBAM, such as reducing carbon leakage, and challenges and issues that the regulation might pose for companies affected. Increased costs, supply chain disruptions, and geopolitical friction are all aspects that might occur, which businesses will need to navigate to be compliant and successfully manage the regulation. As the following discussion will demonstrate, the theoretical concepts outlined earlier, as can also be seen in figure 2, are strongly reflected in the empirical findings. Three key themes have emerged from the data to structure the analysis: trade and economic impact, compliance and governance, and supplier implications and risks. Figure 2: Illustrated Analytical Framework 62 6.1. Trade and Economic Impact With the implementation of CBAM, there is an evident change in global supply chains and the overall cost structures for manufacturing companies that are reliant on carbon-intensive products. The calculations showcased the potential cost increases for SKF under the three distinct scenarios. Scenario 3, where the EU Default values were used in the case of a complete absence of emission data, the amount of required certificates increased significantly compared to the other scenarios, consequently increasing the CBAM-related costs. Thus, emphasizing both the financial and strategic importance of data availability and transparency between actors in the supply chain. This scenario further exemplifies how data availability has a direct economic impact, aligning with Bellora and Fontagné's (2023) argument that transparency is becoming a strategic factor in global trade. Furthermore, this implies that companies can no longer treat data transparency as solely a sustainability concern but must also integrate it into the overall financial risk modeling. Moreover, the potential cost increase illustrated by Scenario 3 highlights how evolving regulatory changes are an active driver of reconsidering sourcing decisions. This reinforces findings by Huang et al. (2022), who emphasize how regulatory asymmetries can distort market competition and lead to trade reorientation or reshoring efforts. The findings from this study also reinforce concerns raised in the literature about the impact of sustainability-driven trade regulations on international business operations, as noted by de Lange et al. (2024). Mechanisms such as CBAM can impose trade distortions because of their differing effects depending on the reporting capabilities of the companies in affected countries (International Trade Council, 2024c). Such scenarios might provoke retaliatory tariffs and other protective measures as a result of the potential imbalance in the international trade landscape. Hence, challenging the actual purpose of sustainable development (International Trade Council, 2024c). Moreover, CBAM introduces more financial risk and complexity for internationally operating firms. Fluctuating exchange rates and increased compliance costs create unpredictability in the international market (Mehtiyev, Magda, & Vasa, 2021). The implementation of CBAM amplifies existing uncertainties in global trade and supply chain management by introducing a series of variable and interdependent factors tied to the emission intensity of imported goods. As previously mentioned, the mechanism requires 63 detailed carbon accounting, which varies significantly across regions due to regulatory standards, data transparency, and technological capacity differences. For instance, suppliers located in countries with limited emissions monitoring infrastructure may struggle to provide verifiable data, leading to conservative estimates or default values imposed by the EU, often resulting in higher costs. Moreover, production methods differ across suppliers: some may rely heavily on fossil fuels, while others might use renewable energy sources, further complicating the comparability of emissions profiles. These variations create a varying cost landscape, where buying organizations that import from non-EU suppliers must navigate fluctuating CBAM charges influenced not only by market prices but also by evolving environmental reporting standards and geopolitical factors. Theoretical frameworks in supply chain management advocate for nearshoring as a strategic response to trade-related uncertainties and environmental sustainability challenges (Ashby, 2016). By reconfiguring the supply chain and relocating production or sourcing activities closer to the point of consumption, firms can reduce their exposure to cross-border regulatory risks, as well as minimize the carbon emissions associated with sourcing from areas with a considerable geographical distance. However, as indicated by the results of this study, such a strategy may not be economically feasible for all firms in all scenarios. Shifting production within EU borders can result in lower overall CBAM exposure. Although it might still increase other factors such as labor costs and energy prices, ultimately increasing the total cost of production for industry actors (Medarac et al., 2020). This reflects broader empirical evidence on the significant operational trade-offs involved in supply chain adjustments, where compliance, cost-efficiency, and sustainability do not always align (Friedl & Wagner, 2012). The findings from this study also align with the concept of strategic disruption in global trade, where regulatory changes force companies to change sourcing strategies and reshape their supplier networks (Klint, 2025). Dependency on non-EU suppliers lacking the capability to share the required data showcases the potential vulnerability of global supply chains in regard to regulatory shifts. For this specific case, SKF’s flexibility is a key factor in their ability to maintain both cost efficiency and, ultimately, their competitiveness in the market after the full implementation of CBAM. The analyses from the scenarios further highlight concerns broader than just carbon leakage and market competitiveness for buying organizations. As Mehling et al. (2019) 64 mention regarding environmental regulation tools, a tool such as CBAM is designed to internalize the environmental costs of carbon emissions. It generally aims to prevent companies from relocating manufacturing to environments with less rigid environmental regulations. However, the increased financial burden that CBAM poses on buying organizations within the EU risks reducing competitiveness, especially when competitors outside the EU are not affected by similar regulations, as is further highlighted by Ergdogu (2025). From a trade and economic perspective, the impact of CBAM on companies such as SKF highlights a possible global shift towards regulation-driven cost structures. While the regulation intends to increase environmental accountability, it introduces uneven burdens that challenge the core pillars of free and fair international trade. The extent to which SKF can mitigate this impact will primarily depend on how successfully the company leverages its capacity to adapt sourcing strategies, such as sourcing CBAM-related products from more than one supplier, enhance data transparency and accuracy through the optimization of supplier data, and improve collaboration with suppliers, such as joint decarbonization ventures, to ensure a smooth transition to a lower carbon-emitting supply chain. Ultimately, CBAM may lead to long-term structural trade shifts, in which emission profiles and local policy alignment increasingly influence sourcing decisions. This raises the strategic question of whether SKF should prioritize short-term cost efficiency or long-term regulatory resilience. 6.2. Compliance and Governance The implementation of CBAM introduces not only financial implications but also complex compliance and governance challenges for global firms like SKF. While internal awareness of the regulation is increasing within SKF, there remains a clear fragmentation in how different departments interpret and prepare for the requirements of it. This varying awareness and a lack of uniform action plans suggest a need for more cohesive internal coordination and governance structures. The challenges observed at SKF align with literature emphasizing the importance of internal coordination and organizational integration in larger decentralized firms (Jucevičius & Jucevičienė, 2022). In such settings, aligning objectives, responsibilities, and timelines 65 internally across procurement, compliance, and sustainability departments is essential for success (Castañer & Oliveira, 2020). The lack of cross-functional collaboration, which can currently be seen in the case of SKF, increases the risk of negative CBAM-related aspects such as inconsistent reporting, internal administrative inefficiencies, and ultimately non-compliance. Internal coordination is hindered when there is no clear ownership of the CBAM implementation process. According to Jucevičius and Jucevičienė (2022), effective coordination relies on a shared understanding of roles and responsibilities. In the case of SKF, the interviews indicated that while some departments has made some efforts regarding scenario planning and initiated communication with suppliers, others were still in the early stages of understanding the actual implications that CBAM will enforce. This siloed approach goes against the best practices for regulatory governance, where integrated functions and clearly defined leadership and accountability structures are advised (McLellan, 2023). This fragmentation reflects a deeper organizational challenge of internal flexibility and adaptability. Theoretical models in organizational governance argue for distributed leadership as a key to managing cross-functional change (Bolden, 2011). CBAM, as a regulation that concerns multiple departments, requires a governance model where authority and knowledge are decentralized but aligned, a condition not yet met in the case of SKF. To tackle CBAM as effectively as possible, firms such as SKF need to work proactively to spread regulatory awareness and compliance knowledge internally throughout the organization. Moreover, the reporting requirements of CBAM place an administrative burden on firms since they require detailed emissions data of specific products from each supplier. The literature on governance structures showcases the importance of collaboration between departments and external actors to meet requirements and continue to meet changing demands (Sahay, 2003; Cousins et al., 2008). However, solely relying on good communication does not mean effective collaboration. There is also a need for supportive processes and a structure that focuses on common goals, which is currently lacking within the company. Governance readiness also has a digital dimension. Without robust systems for emissions tracking and verification, CBAM reporting becomes manual and potentially error-prone. The gap between current capabilities and regulatory demands indicates a misalignment between digital maturity and governance responsibility. 66 The case of SKF also highlights shortcomings in traditional leadership structures, where centralized leadership models to tackle evolving regulatory demands might be insufficient. Organizations may struggle to meet complex reporting requirements when compliance responsibilities are siloed away from core operational teams, as is often the case in centralized systems (Bolden, 2011). In contrast, a distributed leadership approach, which is advocated by Bolden (2011), where authority and responsibility are shared across multiple organizational levels, enables a more agile and proactive approach to governance and compliance. This is especially relevant for large industry companies, where actions are often more reactive than proactive. By adopting a more distributed leadership model, SKF could better position itself to respond to the diverse demands of regulations like CBAM, which has an impact on multiple departments and functions within the company. Moreover, external coordination with suppliers, and the lack of consistent and verified data from external suppliers places pressure on internal systems to compensate for potential gaps. While emissions reporting frameworks (such as the EU CBAM Transitional Registry) are designed to enhance transparency, they require internal systems that can collect, validate, and submit data. The absence of reliable internal processes and strong cross-departmental coordination to handle external coordination with suppliers and other aspects external to the firm, significantly heightens the risk of incurring penalties or overpaying for certificates, due to issues such as misreporting or delays in data collection. (EY, 2023). To shift the focus from mere awareness of the regulation toward execution of tasks important to be compliant, SKF may benefit from including and creating formal governance mechanisms to support both CBAM readiness and compliance. For instance, establishing cross-functional steering groups that act as a responsible organ for aligning procurement, sustainability, and compliance departments will simplify communication, coordination, and collaboration. Although this process is already underway, adopting a more integrated top-down and bottom-up approach will ensure that CBAM is treated as a strategic priority at the highest levels of the company and firmly embedded as an operational responsibility throughout the organization. Further developing a centralized compliance dashboard that enables tracking of supplier data, reporting deadlines, and certificate liabilities can streamline processes and simplify how the company achieves its CBAM-related goals. In summary, while SKF faces significant governance and coordination challenges in implementing CBAM, the cultural and organizational changes required to embed compliance 67 into the company are equally important. Successfully navigating CBAM compliance will demand structural adjustments and sustained efforts in capacity building, training, and change management to ensure that employees at all levels of the company understand the regulation’s implications and individual responsibilities tied to compliance. Furthermore, managing the risks associated with inaccurate reporting or delayed compliance is an aspect that is crucial for the future. As mentioned, not being compliant can lead to financial penalties, reputational damage, and lost competitive advantage. Companies such as SKF must therefore move away from the reactive mindset to instead implement proactive risk management frameworks that identify potential compliance gaps early and establish contingency plans to address them. Beyond fulfilling regulatory mandates, integrating CBAM readiness into SKF’s broader sustainability and operational strategies offers long-term benefits. It can enhance transparency, improve external supplier relationships through shared accountability, and position SKF as a leader in environmental sustainability within the industry. By fostering a culture of continuous learning and adaptability, the company can turn CBAM compliance into an opportunity for innovation and competitive differentiation rather than a mere regulatory hurdle. Which is further highlighted by Bayat, Ozsalman, & Derindag (2025). Ultimately, CBAM compliance represents a complex, evolving challenge that touches many parts of the organization, and also aspects external to the firm. Being successfully compliant will require SKF to blend formal governance with transformation, risk awareness, and strategic foresight, laying the groundwork for stability in an increasingly regulated global market. 6.3. Supplier Implications and Risks The effectiveness of CBAM compliance for international companies engaging in manufacturing activities, such as SKF, relies on both supplier behavior and their capabilities. One of the most critical CBAM-related challenges SKF faces is the lack of verified emissions data from suppliers outside the EU. This deficiency not only increases financial risk through reliance on EU default emission values, which causes a significant increase in certificate costs, as showcased in the calculations. It also compromises their ability to meet the overall reporting standards of CBAM. 68 The relationship between buyer and supplier is especially important in ensuring operational resilience and regulatory compliance. According to Cousins et al. (2008), strong supplier relationships, built on transparency, communication, and mutual trust, are essential for navigating evolving regulatory requirements. However, this is easier said than done in global supply chains, especially when dealing with suppliers who lack either the technical capacity or the incentive to measure and report embedded emissions, as is reported in the case of SKF. This highlights a critical supplier segmentation issue where SKF must now categorize its suppliers not just by cost or delivery performance, but also by emission data reliability. This shift might mark the rise of a new supplier KPI, which may eventually redefine sourcing strategies. As Meixell and Gargeya (2005) and EPA (2024) highlight, global sourcing introduces both sustainability challenges and logistical complexities for both the buying organization and the supplier, which is evident in the case of SKF. The data collected for the study reflects the broader theoretical challenge of supplier integration and collaborative development in sustainability contexts. As highlighted by Flynn et al. (2010), effective integration requires not only operational alignment but also shared strategic goals and open information exchange between buyers and suppliers, conditions that are difficult to achieve when suppliers are geographically dispersed, lack digital infrastructure, or are not incentivized to prioritize sustainability. This also raises equity concerns in global supply chains. Suppliers in developing countries may lack the infrastructure needed to meet CBAM standards, yet the financial burden falls on buyers like SKF. As Calderaro and Levato (2024) argue, this creates a “compliance asymmetry” where accountability is not matched by capacity, reinforcing power imbalances in global sourcing. Krause et al. (2007) further emphasize that collaborative supplier development, such as providing training, technical assistance, and support, can be resource-intensive and is often deprioritized unless driven by clear regulatory pressure. In the context of CBAM, regulatory pressure creates an immediate and logical incentive for such engagement, making supplier development strategic and urgent in both the short- and long-term. As discussed by Rehme et al. (2016), decisions regarding supplier switching or development are not only operational, but also strategic in the perspective of long-term supply chain reconfiguration. Choosing to invest in supplier development can create better long-term alignment, but it can delay short-term compliance. Alternatively, switching suppliers to meet immediate compliance needs introduces switching costs, possible 69 disruptions, and uncertainty regarding the performance of new partners (Farrel & Klemperer, 2007). In this context, the findings support the growing strategic logic behind dual sourcing or the creation of ‘CBAM-ready’ supplier pools. These strategies mirror resilience frameworks that recommend balancing risk diversification with compliance performance (Friedl & Wagner, 2007). This strategic tension is further complicated by status quo bias and information asymmetry, which often cause firms to delay necessary supply chain adaptations (Friedl & Wagner, 2007). For SKF, large-scale supplier switching may not be a viable short-term solution, but the importance of sustainable and transparent suppliers is increasing under CBAM. This calls for a broader supply chain reconfiguration, where compliance and carbon transparency become embedded not just in supplier selection, but in the overall design of supply flows and sourcing strategies. Integrating CBAM-related criteria into supplier selection, tendering, and onboarding processes is essential. Although supplier switching remains complex, proactive integration of sustainability factors can improve long-term regulatory alignment and enhance the overall sustainability performance of the supply chain. Moreover, Manners-Bell’s (2018) theoretical framework on supply chain risk distinguishes between internal and external risks, both of which are evident in the case of SKF. Internal risk includes process-oriented risks, which relate to inefficiencies, errors, or breakdowns within the company’s operations, and control-oriented risks, which stem from weak internal governance, oversight, or decision-making structures. In SKF’s case, internal risks are reflected in inadequate systems for assessing and validating supplier emissions data, leading to potential inaccuracies in CBAM reporting and increased exposure to non-compliance. This lack of robust internal control not only hinders SKF’s ability to monitor emissions effectively but also increases the likelihood of operational disruptions, reputational damage, and financial penalties. In contrast, external risks refer to threats arising from outside the organization and can be divided into supply-side and demand-side risks (Manners-Bell, 2018). For SKF, supply-side risks are particularly significant because of supplier-related uncertainties such as limited transparency in carbon emissions reporting, varying levels of readiness among non-EU suppliers to comply with CBAM requirements, and geopolitical tensions that affect the stability of global sourcing. These challenges are amplified by SKF’s reliance on a globally dispersed supplier network, many of whom may lack the infrastructure or incentives 70 to meet regulatory standards. Such risks threaten both the continuity and compliance of upstream operations. On the demand side, SKF must respond to shifting market expectations, particularly the growing preference for low-carbon and CBAM-compliant products among European customers. This adds pressure to not only ensure regulatory compliance but also maintain competitiveness in markets where sustainability and traceability are becoming critical purchasing criteria. These combined external risks underscore the need for SKF to enhance both supply chain visibility and market responsiveness as part of its broader adaptation strategy under CBAM. Together, these internal and external risks create a complex risk landscape that challenges SKF’s ability to ensure regulatory compliance, cost efficiency, and supply chain resilience under CBAM. Mitigating these risks necessitates a dual strategy emphasizing both diversification and enhanced visibility within the supply chain. On one side, diversification strategies like dual sourcing can reduce dependence on any single supplier or region, thus lowering vulnerability to localized disruptions. On the other side, investing in digital supplier monitoring systems can improve transparency and enable tracking of supplier performance and compliance. Additionally, an increased reliance on European suppliers, who are subject to more stringent environmental regulations, could further safeguard SKF, although this shift will likely require significant investment in new technologies, process adjustments, and supplier relationship management. Ultimately, the application of Manners-Bell’s framework (2018) in SKF’s context underscores the importance of a balanced approach to risk management that integrates both internal process enhancements and strategic external sourcing decisions. This comprehensive approach not only mitigates immediate risks but also contributes to the long-term resilience and sustainability of SKF’s supply chain. Lastly, the supplier dimension is where the difference between theoretical intentions and real-world constraints is most evident. CBAM should incentivize global suppliers to decarbonize and improve reporting practices. However, suppliers in emerging markets may lack access to sufficient infrastructure or the governmental support needed to align with the regulation (International Trade Council, 2024a). This creates a paradox where the buyer bears 71 both the responsibility and the cost for supplier limitations, which is, as also mentioned previously, further highlighted by Calderaro and Levato (2024). In conclusion, the findings emphasize that CBAM affects not only buyers but also suppliers. For SKF, future compliance and cost control will require a proactive supplier strategy that balances collaboration with both internal and external risks. The company must either invest in supporting existing suppliers, identifying new partners, or restructure the entire supply chain. Each option involves specific risks and opportunities, highlighting supplier governance as a key element of regulatory strategy. 72 7. Conclusion To reiterate, the aim of this thesis is to explore the implications of CBAM on global manufacturing firms, with a particular focus on the importation of steel products into the European Union. The findings highlight the complexity of regulatory compliance under CBAM, the potential financial impact of emission-based pricing, and the importance of proactive supplier collaboration and supply chain realignment. This chapter concludes the thesis by summarizing the key findings in relation to the three research questions. Moreover, this chapter also discusses practical, theoretical, and policy implications, and ending with future research recommendations. 7.1. Answering the Research Questions RQ1: What is the level of awareness of CBAM within a manufacturing firm, and what challenges does the company face in relation to the regulation? The interviews conducted with SKF stakeholders indicate that while awareness of CBAM is growing within the organization, the overall level of preparedness remains limited. Several interviewees acknowledged that even if CBAM is an important regulatory development, it has not yet been fully integrated into SKF’s internal processes or planning. One of the main challenges highlighted is the lack of a unified, cross-functional approach to the regulation. Additionally, internal data infrastructure for collecting, verifying, and reporting product-level emissions remains underdeveloped, which in turn poses a significant risk related to regulatory compliance. Furthermore, there is also a lack of clarity on the capabilities of the suppliers. Aspects regarding emissions traceability and the ability to report accurate embedded emission data are all aspects that are reported to be of extra concern. This internal uncertainty, when combined with external data limitations, creates a vulnerability in SKF’s supply chain and can cause an increased administrative burden for the employees engaging with CBAM. The findings suggest that while the company recognizes the importance of CBAM, it is recommended to accelerate internal coordination efforts and begin integrating CBAM into broader risk 73 management and supplier evaluation frameworks to ensure both compliance and competitive advantage as the regulation phases in. The awareness can therefore be described as varying within the company, with some levels of the organization being more aware than others. The main challenges identified within SKF are furthermore mostly related to supplier collaboration, data gathering and integration, and lastly, increased administrative burden. To be able to meet the demands of CBAM, SKF needs to address these issues going forward. RQ2: How will CBAM impact the cost of importing goods under the following scenarios? Scenario 1: Using actual emission data from suppliers, Scenario 2: Using actual emission data from suppliers, with carbon costs accounted for in the country of origin, Scenario 3: Using EU reference emission data when supplier data is unavailable. The calculations in section 5.2 showcase the increased import costs for carbon-intensive products following the implementation of CBAM. The magnitude of these costs depends primarily on two factors: the availability of data from suppliers and the level of embedded emissions in the production process. Scenario 1 illustrates the importance of supplier-specific emissions. Supplier 1’s emissions fell below the CBAM benchmark, meaning no certificates were required, resulting in the most cost-effective scenario for EU importers. Scenario 2 shows how the policy environment in the exporting country affects the cost. Supplier 2 exceeded the benchmark, but due to a national carbon pricing system, the CBAM cost was partially offset. This demonstrates how policy alignment between the EU and third countries can reduce CBAM-related expenses. Scenario 3, where supplier data is missing and EU reference values are used, resulted in the highest costs. In conclusion, CBAM will significantly impact the cost of importing the analyzed SKF product category, with costs ranging from zero to over €1 million annually, depending on supplier compliance. CBAM is therefore not only a regulatory issue, but also a major financial consideration that could be managed through supplier selection and emissions transparency. 74 RQ3: What strategic actions does contemporary literature suggest in order to mitigate the impact of CBAM? The scoping review conducted for RQ3 explored what strategic actions are recommended in academic literature to mitigate the impact of CBAM. Six recurring themes emerged, each offering insights grounded in current theory. First, supplier management is emphasized as a foundational component of CBAM readiness. Firms are encouraged to build transparent, data-driven relationships with suppliers, segmenting them based on emissions visibility and investing in those best positioned to meet regulatory demands. Second, sustainability innovation is framed as a strategic response, not only a compliance task. Literature suggests that engaging in collaborative decarbonization projects, such as green steel development, can deliver both regulatory alignment and long-term competitive advantage. Third, several studies highlight the need for robust compliance systems, including emissions traceability tools and internal structures for handling administrative complexity. Fourth, political considerations are critical. Firms should monitor exporting countries' carbon policies, as legislative alignment with EU principles can lower CBAM-related costs. Fifth, sourcing strategies may need to shift. Literature points to supply chain reconfiguration such as nearshoring, or sourcing from CBAM-aligned regions as a means to reduce exposure. Finally, fairness concerns are widely discussed. Supporting developing-country suppliers through technical and financial partnerships is seen as essential to ensuring equitable and resilient global trade relationships under CBAM. 7.2. Practical Implications The findings from this study, based on the case study of SKF, showcases several implications for actors in carbon-intensive industries such as steel, bearings, and broader manufacturing. With the upcoming implementation of CBAM, companies need to reconsider their emission management, internal coordination, and engage with their suppliers. First, the transition from voluntary emissions reporting to it being a required and financially consequential factor signals a paradigm shift (Bellora & Fontagné, 2023). Emissions data is not only a component of corporate sustainability, but it now influences import costs and competitive positioning directly (Li, Liu & Lu, 2023). Companies that 75 postpone CBAM compliance risk incurring significant costs, especially if supplier data is missing, unverified, or inconsistent, as showcased in section 5.2.2. Thus, reinforcing the need for proactive compliance strategies, clear internal structures, and strong cross-functional collaboration. Second, CBAM necessitates the need for reevaluation of supplier relationships (Mehling & Ritz, 2023). The ability to obtain reliable emissions data will depend heavily on suppliers' willingness and capacity to cooperate, and these aspects are highly necessary to be compliant with the regulation. This, in turn, introduces a challenging trade-off: firms may need to consider co-investing in supplier development, either through training on how to report correctly, integration into systems, or other support related to CBAM processes. These investments should, however, be weighed against short-term cost implications and long-term compliance advantages. For companies with global sourcing footprints, this can also indicate a need to realign parts of the supply chain to favor more compliant or transparent suppliers in other regions (Sabyrbekov & Overland, 2024). Third, as the study's results depict, internal misalignment and unclear ownership of compliance processes can lead to inefficiencies and increased risk of non-compliance. Companies need to strengthen internal structures, establish clear lines of accountability and leadership, and ensure effective collaboration and coordination between sites and departments such as international trade, sustainability, and procurement. Distributed leadership models can support this by empowering local units to take ownership of specific aspects of compliance while remaining coordinated with central objectives. Fourth, the implications of the regulation and the actual impact extend beyond immediate compliance. CBAM also has the potential of being a driver of innovation (Bayat, Ozsalman, & Derindag, 2025). Companies that view regulatory complexity not only as a challenge but as an opportunity to transform themselves and become more sustainable, and who are also able to be flexible regarding the framework, may find themselves better equipped to compete, innovate, and be compliant (Hubatka et al. 2023). Ultimately, industry actors, such as SKF, should approach CBAM as a need for structural change requiring long-term adaptation, and not just a temporary issue. This includes taking proactive steps to secure supplier alignment, investing in internal systems and 76 knowledge-sharing, and positioning regulatory compliance as a mechanism for both operational efficiency and innovation. 7.3. Theoretical Implications The findings from this study showcase several theoretical implications and contribute to academic theory by expanding upon existing literature. By integrating theoretical aspects with an empirical case study, the study offers a refined understanding of CBAM's impact, particularly its influence on international trade dynamics and impact on buying actors within the EU. This aligns with the work of Friedl and Wagner (2007), who emphasize the strategic role of sourcing under external pressure. The primary contribution of this study is the aspect of the buyer’s perspective regarding CBAM's impact. Several studies covering CBAM, such as Huang et al. (2022), are heavily focused on the supplier side of the regulation, while others, such as Li et al. (2023), focus on the policy perspective of the regulation. This thesis addresses a gap in the literature by investigating how EU-based buyers are strategically responding to the regulation and re-evaluating their supply chains, data collection mechanisms, and sourcing decisions under the new compliance demands. The thesis further contributes to the existing literature on how firms are impacted by and can mitigate the implementation of new regulations by offering empirical and conceptual insights into how manufacturing firms adapt and evolve in response to changing regulatory environments. This aligns with Rehme et al. (2016), who emphasize that supplier network reconfiguration, such as supplier switching or dual sourcing, is not merely an operational adjustment, but a strategic response aimed at aligning internal objectives with shifting external conditions. This thesis highlights adaptation as a dynamic process involving risk reclassification, supplier segmentation, cross-functional governance, and long-term capability development. It emphasizes that successful adaptation is dependent on both internal coordination and external collaboration, consistent with the need for collaborative supplier strategies under climate-related regulation discussed by Hubatka et al. (2024). A third contribution lies in linking supply chain governance with environmental compliance under new regulatory circumstances. By analyzing the internal and external risks posed by CBAM and how firms manage these through structural, relational, and 77 technological changes, the study bridges concepts from supply chain management (Farrel & Klemperer, 2007), risk (Manners-Bell, 2018), and organizational governance (Castañer & Oliveira, 2020). This perspective enhances understanding of how regulatory instruments like CBAM reshape the dynamics and information flows between buyers and suppliers, and how firms strategically adapt their operations to maintain compliance, efficiency, and resilience in a fragmented global landscape, supporting the broader institutional implications highlighted by Ellersdorfer et al. (2024). 7.4. Policy Implications As CBAM represents a new form of regulatory approach to addressing carbon emissions in global supply chains, it presents significant policy implications that go beyond the aspect of just being compliant (Bellora & Fontagné, 2023; Li, Liu, & Lu, 2023). By introducing a price on imported goods from carbon-intensive industries, CBAM aims to promote sustainability and level the field between EU-domestic producers subject to heavy carbon costs and producers in areas with less stringent environmental requirements (Simões, 2024). This mechanism will not only impact the management of their supply chains but will furthermore affect companies' investment decisions and sustainability strategies (Ellersdorfer et al., 2024). CBAM has the potential to drive meaningful sustainability innovation, and understanding the implications of the regulation will be critical for regulators, industry stakeholders, and other actors who will be affected (Bayat, Ozsalman, & Derindag, 2025). Through this study, empirical insight is provided into how these impacts are perceived and managed within a manufacturing context, offering valuable input to ongoing policy discussions. From a policy perspective, CBAM underscores the importance and need for better alignment of international trade regulations and sustainability frameworks (European Commission, 2025). It highlights the complexity of designing mechanisms that effectively drive sustainability without creating undue regulatory burdens or unfair competitive disadvantages (Hubatka et al. 2023). This thesis highlights how implementation challenges, such as supplier data availability, internal awareness gaps, and strategic trade-offs, can influence the success of such policies in practice. The mechanism also raises questions on fairness and equity in the international trade landscape (International Trade Council, 2024c). A heavily criticized aspect of the framework 78 is its misalignment with basic WTO principles, thus posing the risk of discrimination (International Trade Council, 2024a). This is particularly relevant in the context of developing countries that may face issues in meeting the stringent reporting standards, technology, and bearing the financial impacts of carbon pricing (Zhu, Zhao, & Zheng 2024). Addressing these concerns is crucial for policymakers to ensure fair and even international trade. Our findings support the idea that such disparities must be considered during regulatory design, especially when global value chains are involved. Ultimately, CBAM represents both a challenge and an opportunity: a challenge in terms of regulatory complexity and implementation, and an opportunity to accelerate the global transition toward low-carbon industries (Bellora & Fontagné, 2023; Mehling & Jakob, 2024). A constructive relationship between regulators and the regulated entities is essential for these mechanisms to succeed. This is to foster transparency, trust, and ongoing dialogue between actors. Policymakers are thus encouraged to draw lessons from early implementation experiences, continually refine regulatory frameworks, and engage diverse stakeholders to ensure that such mechanisms are effective, fair, and sustainable in the long term. This study contributes to that dialogue by offering practical insights from a firm-level perspective on how CBAM influences supply chain decision-making and long-term sustainability planning. 7.5. Recommendations for Further Research This thesis provides insights into the impact that CBAM has on an EU-based buyer operating in the steel industry. However, several areas remain open for further exploration. First, while steel is a significant sector affected by CBAM, future research could examine how the regulation impacts other carbon-intensive industries covered by the mechanism, such as cement, aluminum, and fertilizers. Industry-specific studies could offer a broader understanding of how firms in different sectors adapt to the regulation. Second, this study primarily focused on the buyer perspective within the EU. Further research could investigate the broader implications of CBAM across the whole supply chain, including indirect suppliers and upstream partners, to better understand how compliance pressures diffuse throughout global networks. Third, a more detailed analysis is needed comparing supplier switching and joint collaboration as mitigation strategies. Exploring the effectiveness, risks, and long-term 79 outcomes of these approaches would contribute valuable insights to the literature on supply chain resilience and regulatory adaptation. Finally, as CBAM is not fully implemented at the time of this study, future amendments to the regulation remain likely. Subsequent studies could explore the impact of such changes, either revisiting cases like this one or simulating alternative policy designs. These investigations could help predict and manage the dynamic implications of CBAM on trade strategies and organizational decision-making. 80 Reference list Acharyya, R. (2023). 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Energies, 17(2), p. 509, doi:https://doi.org/10.3390/en17020509. 93 Appendix Appendix A: Scoping Review Table 1: Scoping Study Inclusion & Exclusion Criteria Category Inclusion Criteria Exclusion Criteria Time Frame Studies Published after 2020 Studies published before 2020 Language English-language publications Non-English publications without translations Study Type Journals, articles, academic publications Opinion pieces, blog posts, business reports Regulatory Focus Research discussing CBAM policies, General policy discussions trade regulations, or supply chain impacts unrelated to international trade, manufacturing, supply chains Relevance Studies discussing CBAM’s impact on Studies unrelated to CBAM or manufacturing companies, supply chains, its economic implications and international trade Table 2: Search Results Set 1. Metric Scopus Web of Science Total Total Number of Articles 69 44 113 Unique Articles 69 44 Articles Prevalent on 23 both Articles Exclusive to 21 Web of Science Articles Exclusive to 46 Scopus Total Number of Unique 90 Articles Notes: Set 1 Keywords Include: CBAM OR “Carbon Border Adjustment Mechanism” AND Impact AND “International Trade” 94 Table 3: Scoping Review Article Classification 95 Appendix B: Scenario Analysis Table 1: Adjusted CBAM Benchmark for CN 732619 Adjusted CBAM Benchmark for CN 732619 Year CBAM Factor Adjusted CBAM Benchmark 2026 97,5% 3.1883 2027 95,0% 3.1065 2028 90,0% 2.9430 2029 77,5% 2.5343 2030 48,5% 1.5860 2031 39,0% 1.2753 2032 26,5% 0.8666 2033 14,0% 0.4578 2034 0,0% 0.0 Supplier 1 data Supplier 1: CN Codes: 73261910 & 73261990 CBAM benchmark for 73261910 & 73261990: Direct Emissions: 2.65 tCO₂/t Indirect Emissions: 0.62 tCO₂/t Total Benchmark: 3.27 tCO₂/t Actual Specific Embedded Emissions (ASEE): Direct: 0.5 tCO₂/t Indirect: 0.5 tCO₂/t Total ASEE: 1 tCO₂/t 96 Table 2: Import Volumes (2024): Quarter Volume (tonnes) Q1 1 000 Q2 1 000 Q3 1 000 Q4 1 000 CBAM Certificates Calculation: Since ASEE (1 tCO₂/t) is lower than the CBAM Benchmark (3.27 tCO₂/t), no CBAM certificates are required for Supplier 1. Total CBAM Cost for Supplier 1: 0 certificates × 80€ = 0€ Supplier 2 data Supplier 2 CN Code: 732690 Actual Specific Embedded Emissions (ASEE): 4 tCO₂/t Import Volumes (2024): Import Volumes (2024): Quarter Volume (tonnes) Q1 750 Q2 750 Q3 750 Q4 750 CBAM Certificates Calculation: CBAM Certificates = (4−(3,27×CBAM Factor))×Import Volume (t) 97 Appendix C: Interviews Interview Questions: Awareness & Understanding of CBAM 1. How would you describe SKF’s awareness of CBAM and its requirements? 2. What internal discussions have taken place regarding CBAM compliance Challenges & Risks of CBAM Compliance 3. What are the most significant challenges SKF faces in preparing for CBAM compliance? 4. What are the most significant challenges SKF will face after the implementation of CBAM? 5. In the context of SKF being a supplier to other customers, how do you view challenges related to your own declaration for your customers in case of insufficient information from your own suppliers? 6. How do you anticipate CBAM affecting SKF’s international trade, particularly in terms of potential trade barriers created by the framework? Opportunities & Strategic Benefits 7. Does SKF view CBAM as purely a compliance challenge, or are there potential benefits? 8. How might CBAM impact SKF’s competitive positioning in the market? 9. How do you think CBAM will drive sustainability and innovation in SKF? Current & Future Preparation Strategies 10. What concrete steps has SKF taken so far to prepare for CBAM? 11. How is SKF collaborating with suppliers to ensure compliance with CBAM? 12. What are SKF’s long-term strategies to adapt to CBAM beyond just compliance? 98