As of 1 October 2023, the carbon duty, which sets out the rules for the so-called Carbon Border Adjustment Mechanism, or CBAM for short, came into force in the European Union. Currently, there is a transition period from 1 October 2023 to the end of 2025, during which importers do not have to pay any fees, but are obliged to collect and report relevant data.
The CBAM is a step that will rewrite international trade patterns and increase the pressure to decarbonise.
The regulation is a ground-breaking step by the European Union that should complement the current emissions trading system and level the existing playing field where domestic producers of emissions-intensive commodities are at a disadvantage compared to importers from other countries where environmental regulation is less stringent or greenhouse gas emissions are not charged.
This legislation in its entirety is expected to have a range of both positive and negative impacts. It will provide a significant impetus to decarbonise emissions-intensive industries at a global level, boost hydrogen production through renewable energy, change key international trade flows, but may also have negative impacts for end consumers as prices of primary commodities are likely to increase for the end user. The CBAM is a key instrument to prevent the carbon leakage effect that occurs when European companies shift emissions-intensive production to countries where they need to meet lower standards, or when European products are replaced by higher-emitting imports, undermining the European Union's climate action.
Who is affected by the regulation and what commodities does it cover?
Importers of energy-intensive products such as electricity, iron, steel, aluminium, cement, hydrogen, fertilisers and their products will be required to pay a carbon duty when entering the European market. This charge is part of the European Emissions Trading Scheme. Importers must declare the carbon footprint of these products and pay the relevant fee, which is adjusted according to the decreasing amount of free allowances available in the EU and will also be deducted from the price of the emission allowance in the country of origin of the goods.
It should be emphasised that there is currently a transitional period where the importer or indirect customs representative is only required to collect data and report quarterly to the relevant authority. Thus, the first report should be submitted for goods imported in the fourth quarter of 2023, by 31 January 2024. The last report should be submitted for goods imported in the fourth quarter of 2025, by 31 January 2026.
What will be the content of the report?
For the years 2023-2025, the report to be submitted to the inspection body should contain the following information:
Quantity of imports: the total quantity of regulated goods imported in the previous quarter.
Direct and indirect emissions: the greenhouse gas emissions in CO2eq associated with the production of the goods, including all direct emissions from production processes and indirect emissions such as those associated with the energy used in production.
Carbon price payable information: The calculated amount of the country of origin emissions charge for embodied emissions, including emissions associated with precursors.
Precursor materials information: Details of materials used in the production process that have their own associated emissions.
Reporting should include information on three categories of products:
Simple products (goods made from fuels and raw materials with zero embedded emissions)
Complex products (goods that include embedded emissions from precursors)
Combined goods (a group of CBAM goods with different nomenclature codes but similar characteristics)
Reports should be submitted electronically through the CBAM Transitional Registry system, which will be designed to collect and manage all information related to these reports. Based on the information collected during the transition period, the European Commission will refine the individual criteria and requirements to facilitate the reporting process for companies and to focus on key sectors. The transition period will also help companies to set up communication and data collection across the supply chain in third countries.
How can Green0meter help you?
Setting up the data collection mechanisms and preparing a CBAM report based on them is not an easy task, given that the regulation is already in force today and the first report is due in January 2024. Green0meter can offer significant help, guiding you through the entire process from preparation to submission of the CBAM report within a few months. The preparation of the report starts with the determination of the boundaries of the production processes, followed by the monitoring phase of direct and indirect emissions associated with the production of goods. Based on this data, we will prepare a turnkey report that is fully compliant with European legislation.