What is it?
The Carbon Border Adjustment Mechanism (CBAM) will impact all exporters of certain relevant products and EU importers, where the import of steel and aluminium, fertiliser, concrete, hydrogen and electricity, must be tracked. Why?
The CBAM is part of the concept of carbon pricing and the EU’s aim of being the first ‘green continent’, by imposing regulation on EU businesses, to encourage decarbonisation. This has the effect of moving carbon intensive production away from the EU, to countries with less strict policies on this type of industry, or where EU products are replaced by imported products. Therefore, due to the additional regulation, EU products of this nature, will be more expensive, compared to imports from outside the EU.
To readdress the balance, the EU is imposing a tariff on import, or ‘adjustment’, for certain high-carbon intensity products on entry to the EU.
What needs to be done?
CBAM came into force on 1 October 2023 and so the first declarations under CBAM will be for the quarter ended 31 December 2023, due for submission by 31 January 2024. The regime will be relevant to any EU importer of relevant products, with a consignment value of over €150, so in effect, there is no de minimis.
Importers into the EU must track all imports of relevant products on a CBAM declaration. The declaration, at a high level, will require:
- Product data
- Customs data
- Carbon emissions data
This will add a further compliance burden on EU importers of relevant products, where a process will be required to be established for tracking relevant products. The first two quarterly declarations will be allowed to use default values for embedded greenhouse gas emissions, however, following this, actual emissions data will be required to be used.
EU importers must now be engaging with suppliers, so that the required data can be obtained, which might be difficult across multiple suppliers in a supply chain. Contracts and incoterms will need reviewing, to ensure the importer is compliant with CBAM requirements.
There will be a transition period up to 2026, after which, CBAM certificates must be bought, to offset the cost of embedded carbon and other emissions. Credit will be given against carbon taxes levied in the country of origin.
There will also be the ability for goods to be stopped at the EU border and penalties for non-compliance introduced.
Next steps
Compliance will be key initially, although decisions on carbon emissions reduction in the supply chain will undoubtedly be a consideration. Businesses importing relevant products into the EU and non-EU suppliers of relevant products within the supply chain, should review guidance and begin discussions with stakeholders to ensure compliance where necessary.
We will update on progress as and when we know more, but if you would like an initial conversation on CBAM, we would be happy to arrange this.