Carbon Border Adjustment Mechanism (CBAM)
What?
CBAM was first introduced as a part of the European Green Deal, which serves as a guide for both tax and non-tax policy initiatives in the EU to achieve its ambitious target of becoming climate neutral by 2050. The CBAM, introduced by EU Regulation 2023/956 will put a carbon price on certain imported goods and will function in parallel with the EU Emissions Trading System (“EU ETS”) with the intention of equivalent carbon pricing on imports and EU-produced goods. The CBAM will cover imports import of cement, iron and steel, aluminium, fertilizers, electricity and hydrogen. Derivatives and some precursors of these products are included in the scope and listed and identified with each CN code in the Annexes I of the CBAM Regulation. Gases covered by the CBAM Regulation will be the emission of carbon dioxide, nitrous oxide and perfluorocarbons. Direct and indirect emissions will be taxed for cement, fertilizers, and electricity. Iron, steel, aluminium and hydrogen will be only taxed for their direct emissions. Companies active in importing these products into the EU are advised to timely evaluate the potential impact on their business model.
What do you need to monitor?
Perform following steps in the development of your monitoring methodology documentation (MDD):
Define the installation’s boundaries, production processes and production routes
Define the reporting period you are going to use. The default case is the (European) calendar year.
Identify all the parameters you need to monitor (direct emissions, direct emissions related to heat flows, indirect emissions stemming from electricity consumed, embedded emissions in certain materials, so-called precursors, additional parameters for some goods.
Determine the methodology to monitor each parameter (quantities fuels and materials, call factors, instruments used, use of default values…)
Calculate and report embedded emissions of your CBAM goods
Importer or producer of CBAM goods? We can help you meet compliance
We can help you to determine the embedded emissions within CBAM goods produced / imported (in line with the transitional provisions or EU rules
Through our team of experts, during the transitional period we can conduct an independent (voluntary) verification of the calculation methodologies used for calculation of the embedded emissions
As part of an accredited ETS verifier, we can provide verification of imports/embedded emissions during the definite phase.
Timing
CBAM will be phased in gradually and will start 1 October 2023 followed by a transitional period till 1 January 2026. During this period importers will have to report on a quarterly basis the embedded emissions in goods imported during the previous quarter (until end of 2025).
Starting 1 January 2026 the CBAM’s entry in full force, EU importers will have to buy carbon certificates corresponding to the carbon price that would have been paid, had the goods been produced under the EU carbon pricing rules.
Conversely, once a non-EU producer can show that they have already paid a price for the carbon used in the production of the imported goods in a third country, the corresponding cost can be fully deducted for the EU importer.
Phasing out of free allocation will take place in parallel with phasing in of the CBAM in the period 2026-2034.
Are you an operator of an installation producing “CBAM goods”?
CBAM goods are goods currently imported into the EU from the cement, iron and steel, aluminium and some chemical industries (fertilizers and hydrogen), and electricity. To answer this question, you must compare the CN codes of your products against the list of goods given in Annex I to the CBAM Regulation.
Are you exporting your CBAM goods to customers in EU Member States?
The CBAM affects you if this is the case.
Please note that your products may also be purchased by clients who themselves manufacture CBAM goods, and your products may serve as “precursor” for their CBAM goods, which then may be exported to EU countries. Also, if you sell your products to traders who then sell them to EU customers, your goods fall under the CBAM.
Requirements
Importers within the EU will have to apply for the status of authorised CBAM declarant. During the transition phase starting 1 October importers/declarants need to report on the embedded emissions of imports previous quarter, without yet having to pay a financial adjustment.
During the definitive period, and by 31 May each year - first time in 2027, declarants use the CBAM registry to declare the verified imports/embedded emissions for imports in 2026 and surrender the corresponding CBAM certificates.
Failing to comply will be subject to penalties.