The beginning of the month officially opened the transition period of the EU’s Carbon Border Adjustment Mechanism. This means that companies are now obliged to monitor the turnover of imported goods and the embedded emissions for these goods through cyclic reporting.
CBAM – what is it?
The Carbon Border Adjustment Mechanism (CBAM) is a new type of border tax proposed by the EU, which imposes an appropriate additional cost on the price of imported industrial products, including the emissions generated by those products. It is the equivalent of the EU Emissions Trading Scheme (EU ETS) for imported goods.
CBAM is the EU’s response to the risk of escalating so-called carbon leakage, which is the result of increasingly restrictive emissions trading policies in Europe. Carbon leakage refers to a situation in which industrial players located in the European economy relocate production outside its borders to avoid additional costs resulting from, among other things, a shrinking pool and rising emission allowance prices.
This would be directly linked to the loss of competitiveness of European industry and the relocation of economic activity, jobs, and budget revenues outside the regulated countries. As a result, the additional import costs under CBAM are intended to ensure that the industry remains in Europe despite its pro-climate efforts.
CBAM – what goods does it cover?
Initially, CBAM covered goods from sectors such as electricity, cement, fertilizers, steel products, metal products, and aluminum. In December 2022, at the request of the European Parliament, the scope was extended to include hydrogen, ammonia, organic chemicals plastics, and goods made from them.
This means that EU hydrogen importers will also be required to report quarterly on the amount of hydrogen imported into the EU, as well as the GHG emissions released during its production.
CBAM – what stages does it involve?
Transitional period – from October 1, 2023, to December 31, 2025.
Importers will be responsible for estimating emissions for goods following the methodology adopted by the European Commission, monitoring them, and submitting quarterly reports. The deadline for submitting the first report is scheduled for the end of January 2024. Importantly, during the transitional period, importers are not obliged to make payments for the import of goods, nor do they need an import permit.
Full implementation – from January 1, 2026.
After the end of the transitional stage, importers will be obliged to declare each year the number of goods imported to the EU in the previous year, the volume of embedded emissions and indirect emissions, as well as bear the proportional cost of purchased CBAM certificates.
How to calculate embedded emissions under CBAM?
In the first year of the transitional period, the emission estimation methodology will be relatively flexible. It provides for the possibility of full reporting according to the new methodology proposed by the European Union, reporting based on systems proposed by countries that are equivalent to the EU method, or reporting based on default values that the European Commission will propose in the CBAM transition register. By the start of 2025, it will be possible to use only the EU methodology.
Where to submit CBAM reports?
All Member States were obliged to designate the appropriate entity responsible for implementing the obligations of Regulation (EU) 2023/956. In Poland, this body will be the National Center for Emission Balancing and Management (KOBIZE). The basic task of the entity will be to verify periodic reports submitted by importers.
