Carbon Border Adjustment Mechanism - CBAM

Carbon Border Adjustment Mechanism – CBAM

2023 / 10 / 11

On 10 May 2023, the Council of the EU adopted Regulation 2023/956 establishing a carbon border adjustment mechanism (Official Journal of the EU L 2023 No 130, p. 52) (“Regulation“). The Regulation entered into force on 17 May 2023 and will apply to a limited extent starting from 1 October 2023. The provisions impose an obligation on importers of certain products to participate in the cross border adjustment mechanism.

Background information

The border adjustment mechanism for CO2 emissions (carbon border adjustment mechanism – CBAM) means that products imported to the EU and intra-Community products will be subject to equivalent emission levies.

Who is affected by the new requirements?

The preamble to the Regulation indicates that CBAM is to apply to a broad range of products. At the moment, Art. 2(1) of Regulation 2023/956 provides that CBAM applies to goods listed in Annex I or processed products from those goods. The following goods are covered by Annex I (the Annex contains more detailed information and the EC informs that the range of the goods may be extended in future):

cement
electricity
fertilisers
iron and steel
aluminium

What to get ready for?

Implementation of the carbon border adjustment mechanism was divided into two stages.

Stage I

On 1 October 2023 a transitional period starts, during which entrepreneurs will need to comply with certain obligations. This period will end on 31 December 2025. The provisions which took effect on the first day of October denote certain reporting obligations. They consist of periodic reporting of data regarding goods imported to the European Union.

Thus, starting on 1 October 2023, entrepreneurs importing products that fall under any of the above groups will have to submit a quarterly CBAM report comprising information about goods imported to the European Union. The deadline for submission of the report is the last day of the month after the end of the quarter in which the goods were imported (Art. 35(1) of Regulation 2023/956). This means that an entrepreneur who imported goods listed in Annex I to the Regulation in the period from 1 October to 31 December 2023 should submit a CBAM report by 31 January 2024.

Stage II

The system will be in full operation starting from 2026, and will then involve the following obligations:

importers who intend to import goods covered by CBAM to the EU, or their customs representatives, will need to get the status of “an authorised CBAM declarant”;
every year, authorised CBAM declarants will be obliged to declare the quantity of goods imported to the EU in the previous years and the related greenhouse gas emissions;
next, said emissions will need to be accounted for by the corresponding number of dedicated emission units – CBAM certificates;
authorised CBAM declarants will have to purchase CBAM certificates in advance and have them on their accounts in the CBAM register;
the price of the certificates will be calculated based on the average weekly price of emission allowances in EU ETC expressed in EUR, and a single certificate will correspond to one tonne of emitted CO2;
if a greenhouse gas emission charge was paid the country of origin of the goods, the number of CBAM certificates to be surrendered can be reduced;
the number of CBAM certificates to be surrendered will be temporarily adjusted (reduced) due to free allocation of emission allowances under the ETS – gradual withdrawal of the free allowances under the EU ETS will be in parallel to CBAM withdrawal in the period of 2026-2034.

If you have any doubts, our team is ready to support you in respect of the obligations you need to comply with.

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