Navigating the Carbon Border Adjustment Mechanism (CBAM)
Your EU Regulation Update Factsheet
Designed to prevent “carbon leakage”, CBAM is legally adopted by EU Regulation (EU) 2023/956. It imposes administrative and financial costs on EU importers of CBAM goods into the EU from third countries. How does it impact you as a shipper? Let’s find out.
What is Carbon Leakage?
It is the dilution of EU carbon reduction efforts by relocation of production of covered products to third countries with less carbon pricing in place or substitution of EU products by imported products from such countries.
What Does CBAM Mean For Importers to The European Union?
Affected EU importers will buy carbon certificates corresponding to the carbon price that would have been paid, had the goods been produced under the EU's carbon pricing rules.
Conversely, once a non-EU producer can show that they have already paid a price for the carbon emitted during the production of the imported CBAM goods in a third country, the corresponding cost can be fully deducted for the EU importer.
When Will The CBAM Be Phased In?
The CBAM will be phased in gradually and will initially apply only to a selected number of goods. A reporting system will apply as from 1st of October 2023 for those products with the objective of facilitating a smooth roll out and to facilitate dialogue with third countries, and importers will start paying a financial adjustment as from 2026.
What Are The Product Groups Covered?
Importation of The Goods Covered by The CBAM Regulation
From 2026, goods can only be imported into EU by an authorized CBAM declarant. Therefore, importers shall – prior to importing covered goods into the EU – apply for the status of authorized CBAM declarant via the CBAM registry established in accordance with the Regulation.
Reporting Obligation is Key for The Transition Phase
The CBAM regulation officially entered into force the day following its publication in the Official Journal of the EU on 16 May 2023. The CBAM itself will enter into application in its transitional phase on 1 October 2023, with the first reporting period for importers ending 31 January 2024.
The reporting obligations and information sought from EU importers of CBAM goods, as well as the provisional methodology for calculating embedded emissions released during the production process, specified in the CBAM Implementing Regulation for the transition phase published 17 August 2023.
The Implementing Regulation on reporting requirements and methodology provides some flexibility when it comes to the values used to calculate embedded emissions on imports during the transitional phase.
During the first year of implementation, companies will have the choice of reporting in three ways:
- Full reporting according to the new methodology (EU method)
- Reporting based on equivalent third country national systems;
- Reporting based on reference values.
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Definitive Period and CBAM Certificates
Once the permanent system enters into force on 1 January 2026, importers will need to declare each year the quantity of goods imported into the EU in the preceding year, their embedded emissions and surrender any required corresponding number of CBAM certificates by 31st of May each year (first time in 2027 for the year of 2026). In the period of 2026-2034, CBAM will phase-in while ETS free allocation will phase-out.
The authorised CBAM declarant shall keep records of the information required to calculate the embedded emissions, including the report of the verifier, until the end of the fourth year after the year in which the CBAM declaration has been or should have been submitted.
As of 1 January 2025, only the EU method will be accepted. The EU Commission also developed a dedicated IT tools to help importers perform and report these calculations, as well as in-depth guidance, training materials and tutorials to support businesses when the transitional mechanism begins.
Whilst importers will be asked to collect fourth quarter data as of 1 October 2023, their first report will have to be submitted by the end of January 2024.
Further Information
Detailed information can be found European Commission’s CBAM page:
European Commision’s factsheet and Q&A document on CBAM:
The World Bank’s CBAM Exposure Index can be found here:
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