1 October 2023 kickstarted the transitional period of the Carbon Border Adjustment Mechanism (CBAM) (Regulation (EU) 2023/956). From then until 31 December 2025, importers of CBAM goods must on a quarterly basis report the greenhouse gas emissions embedded in their imports. The purpose of the transitional period is to serve as a “learning period” and collect information to refine the implementation of the CBAM for its definitive phase, as from 2026. As from 31 December 2024, importers must have “authorized declarant” status to qualify for the import of CBAM goods.

Background

CBAM imposes a price on carbon emitted during the production of carbon intensive goods in third countries that are imported into the EU. The current scope of CBAM is limited to cement, iron and steel, aluminium, fertilisers, electricity and hydrogen (“CBAM goods”). It works in tandem with the EU Emissions Trading Systems (“EU ETS”), which created a ‘cap and trade’ carbon market in the EU. The cap represents the total amount of greenhouse gases that can be emitted by EU operators within scope. This cap is reduced annually in line with the EU’s climate target. CBAM aims to address so-called ‘carbon leakage' whereby EU companies move carbon-intensive production outside the EU where less stringent climate policies apply or EU products get replaced by more carbon-intensive imports. By putting a price on carbon emitted during the production of carbon intensive goods that are entering the EU, it levels the playing field between EU and third country producers.

Transitional period: reporting of embedded emissions  

During the transitional period (1 October 2023 to 31 December 2025), importers will need to start reporting the greenhouse gas emissions embedded in their imported CBAM goods by submitting CBAM reports with detailed information on direct and indirect emissions as well as any carbon price effectively paid in a third country. The first CBAM report is due by 31 January 2024, covering the period October – December 2023, after which CBAM reports must be submitted on a quarterly basis.

The transitional period is intended to be a learning period for all stakeholders involved (importers, producers and authorities). While as of definitive application in 2026, the calculation of embedded emissions are to be determined by a EU prescribed methodology, during the transitional period CBAM provide some flexibility in calculation methods. Until 31 July 2024, companies can use of default values of embedded emissions (to be published by the European Commission by the end of 2023). Until 31 December 2024, companies can report embedded emissions in accordance with the rules of a carbon pricing scheme or emissions monitoring/reporting scheme in the country of production.

The European Commission published guidance documents for importers into the EU and operators outside the EU, as well as a step-by-step checklist to support businesses in fulfilling their reporting obligations. On 15 September 2023, it also published additional rules as regards reporting obligations during the transitional period (Commission Implementing Regulation (EU) 2023/1773).  

Registry for the submission of CBAM reports

CBAM reports must be filed with the CBAM Transitional Registry managed by the European Commission’s DG TAXUD. The CBAM Transitional Registry can be accessed through the DG TAXUD authentication portal here. Access can be requested through the National Competent Authority (“NCA”) in which the importer is established (a provisional list of NCA’s is available). The platform is expected to be fully operational by early November 2023.  

Next steps

Importers of CBAM goods should familiarize themselves with the procedural and substantive requirements of submitting CBAM reports, in particular assess the data that is required on embedded emissions and carbon price in the country of production. CBAM importers must register with the CBAM transitional registry to submit the first CBAM report by the end of January 2024.

As from 31 December 2024, importers must have “authorized declarant” status to qualify for the import of CBAM goods.