CBAM update: Transition period starts Oct. 1, 2023

CBAM, a new European Union climate levy, is officially in the starting blocks. But what exactly does this CBAM mean? What is the purpose of this? And what changes will all this bring for you? DKM Customs is happy to explain it to you in concrete terms.

What does CBAM mean?

The customs unions may well be the most important aspect of the European Union, because the EU can decide for itself what requirements imported goods must meet. In this context, the EU decided to reduce its carbon emissions by 55% by 2030 to meet its climate target. The most important measure to achieve this objective? Yes, CBAM (Carbon Border Adjustment Mechanism).

But what does this mean? Specifically, a carbon certificate must be purchased when importing certain goods. The reason for this is simple: it is an offset to the carbon price you pay if these goods are produced in the EU. Were you already paying a carbon price abroad? Then there is the possibility of a reduction in the price paid here.

Of course, this mechanism also has a purpose, and that purpose is very clear: to ensure that the rest of the world also takes similar measures to reduce carbon emissions. An additional reason is the fact that companies have fewer reasons to move production to third countries.

What goods are covered by this mechanism?

CBAM happens in several stages: a transition period and effective implementation. This first phase includes the following items on which you must report:

  • Cement
  • Iron and steel
  • Aluminum
  • Fertilizer
  • Electricity
  • Hydrogen
  • Some precursors
  • Some downstream products such as:
    • 7318: Articles of iron and steel
    • 7326: Other articles of iron and steel
    • 7616: Other articles of aluminum

The CBAM mechanism is not applicable for:

  • Steel shipments under 150 euros.
  • Goods for military applications
  • Inward processing

The intention is to expand this list even furter, so that by 2030 all goods covered by the Emission Trading System will also be covered by CBAM.

What is changing?

But what changes? As mentioned earlier, CBAM is being implemented in several phases. The transition period includes a reporting requirement and the effective implementation includes the rule of effectively paying for the carbon certificates based on the reporting.

Transition period

The transition period of the CBAM starts on Oct. 1, 2023, and runs until Jan. 1, 2026. As of this moment, there is therefore a reporting requirement, although currently without consequences. During this transition period, an authorized declarant must report the following to the competent authority: embedded carbon emissions by relevant imports on a quarterly basis.

This reporting requirement applies to subsequent individuals without the consequence:

  • Importers under direct representation
  • Importers establishes in an EU Member State and where indirect representation is applied may agree to transfer the obligation to an indirect customs representative
  • Importers not based in the EU, where the indirect customs representative is responsible for reporting

The first reporting is due in January 2024. As of December 31, 2024, the importer/declarant must register in the CBAM registry as an "authorized CBAM declarant".

Effective implementation CBAM

The effective implementation of the CBAM is scheduled for June 1, 2026. As of this writing, it is mandatory to purchase CBAM certificates on a central platform. Note that this platform has yet to be provided by the European Commision, which controls CBAM.

Further updates on this effective implementation can always be found in this article.

How can you prepare your company for CBAM?

But how can you as a company best prepare for the implementation of this mechanism. Because not only the large multinationals are affected by this measure, you as a small SME that occasionally imports raw materials should also prepare thoroughly.

DKM Customs recommends that you evaluate your supply chain for CBAM impacts. Consider correctly determining the classification and origin of your imported goods.

June 2023 update: EU Commission publishes draft implementing rules for emissions reporting

Under CBAM, the European Commission unveiled its draft implementing regulation for reporting requirements. DKM Customs is happy to explain all this and exactly what it means for you and your business.

Background information

Following the entry into force of the CBAM regulation on May 17, 2023, the European Commission published a draft implementing regulation. This regulation contains reporting requirements under CBAM during the transition period beginning Oct. 1, 2023.

We would like to summarize the main points of the CBAM implementing regulation. Importers must provide the following of their imported CBAM goods:

  • The quantity and associated commodity codes
  • The countries of origin
  • Production location data identified by United Nations code for trade and transportation locations, address and geolocation data
  • The production routes used
  • The specific (direct and indirect) emissions
  • The carbon price paid in the country of origin and any discounts or other forms of compensation on that price

As an importer, you may choose to ask your producers to use an electronic template issued by the EU Commission. This template contains all the reporting elements.

Sanctions

When failing to comply with CBAM reporting requirements, you can be fined between €10 and €50 for each ton of unreported integrated emissions. The actual fine is determined based on a number of factors. The fine can also increase if the duration of non-reporting exceeds 6 months.

Calculation methods for integrated emissions:

To calculate the integrated emissions, you can use one of the following methods:

  • From source streams (based on activity data/laboratory analyses)
  • From emisison sources (measuring the concentration of the relevant greenhouse gas)

Under certain conditions, other calculation methods are allowed until Dec. 31, 2024.

Use of default values

In addition to reporting standard emission values, as an importer you can also combine the use of actual emission data with the use of standard values with certain limits. If you choose to do this, you create flexibility in the case of partially unavailable emissions data.

Forum for reporting

The CBAM report must be submitted with the CBAM transition file. As an importer, you will be granted access to this registry through the CBAM trade portal. Through this portal, you can submit CBAM reports via a web interface or a system-to-system interface.

Impact on businesses

Now that the CBAM regulation has officially entered into force, it means that the requirements and timetable for the transition period are clearer. This allows you as a company to continue your preparations for CBAM.

Specifically, this means you can take the following actions:

  • Collecting data on EU imports of CBAM goods during this quarter.
  • Approach suppliers and ask them for information on production sites.
  • Collecting data on integrated emissions or applying default values.
  • Preparation and submission of quarterly reports.
  • Organizing stakeholders and assigning roles and responsibilities.
  • Arrange access to the CBAM portal for traders.
  • Create and implement business processes for managing CBAM compliance.