What is CBAM?
CBAM stands for "Carbon Border Adjustment Mechanism" and is based on an EU regulation with the overarching aim of providing incentives to reduce emissions in emission-intensive industries.
The CBAM Regulation:
complements the EU Emissions Trading System ("EU ETS") and replaces the free allocation of EU ETS allowances
is a climate policy measure to implement the EU's "Green Deal", which aims to make Europe climate-neutral by 2050
introduces a CO₂ price for certain goods produced in third countries to compensate for CO₂ emissions emitted during the production of goods
serves to prevent the relocation of production to third countries ("carbon leakage")
is intended to establish a level playing field for the production of goods within and outside the EU and create incentives for companies in third countries to reduce emissions
Which goods are affected by this?
Goods originating in a third country (outside the EU) & the actively processed products from these goods, provided they are imported into the customs territory of the Union.
Products whose manufacturing processes are particularly CO₂-intensive are affected:
Cement
Electricity
Fertilizers
Iron & steel
Aluminum
Hydrogen
When does the CBAM Regulation come into force?
→ The reporting obligation started for the first time from 31.01.2024 and already referred to Q4 2023 and must be submitted quarterly from now on, your customers are the declarants, thus obligated to report.
→ The competent authority is the German Emissions Trading Authority (DEHSt), but the report is submitted to the EU Transitional Registry.
→ CBAM can be divided into a transition phase until the end of 2025 and full implementation from 2026 onwards.
Transition phase: Only calculation and reporting of emissions is required, and the methodology allows even more leeway in the determination, especially for the year 2024.
Full implementation: From 2026, importers will have to purchase equivalent GHG certificates for the calculated GHG emissions - how this phase is actually implemented and whether a wider range of product groups will be affected depends on the initial transition phase and a subsequent decision by the Commission. To this end, the CBAM report will only have to be submitted annually instead of quarterly as in the transition phase.
What is required of you as suppliers?
Transitional Phase (2023-2025)
During the transitional phase of CBAM, suppliers need to focus on reporting and preparing for the full implementation. Here are the key requirements:
1. Emissions Reporting
Accurate Data Collection: Collect and report accurate data on the carbon emissions embedded in your products.
Scope of Reporting: Include direct emissions from production processes and, where applicable, indirect emissions from electricity use.
2. Documentation and Verification
Record Keeping: Maintain detailed records of production processes, energy consumption and emissions.
3. Collaboration with Importers
Data Sharing: Provide necessary emissions data and documentation to EU importers in a timely manner.
Support: Assist importers in complying with CBAM reporting requirements by ensuring transparency and accuracy in the data provided.
4. Preparation for Full Implementation (optional)
Understanding Requirements: Stay informed about the evolving CBAM regulations and prepare for the upcoming financial obligations.
Process Adjustments: Begin evaluating and implementing changes in production processes to reduce carbon emissions, if feasible.
Full Implementation Phase (from 2026 onwards)
In the full implementation phase, suppliers will face more stringent requirements, including financial obligations. Here are the key requirements:
1. Emissions Reporting and Certification
Continuous Reporting: Continue providing detailed and accurate emissions data for all relevant products.
Updated Verification: Ensure ongoing third-party verification of emissions data to comply with EU standards.
2. CBAM Certificates
Calculation of Certificates: Determine the number of CBAM certificates required based on the verified carbon emissions embedded in the products.
Cost Implications: Be aware that importers will need to purchase CBAM certificates, which may affect the overall cost structure and pricing of your products.
3. Compliance and Transparency
Regulatory Adherence: Strictly adhere to EU regulations regarding emissions reporting and certification.
Transparent Practices: Maintain transparency in all reporting processes and be prepared for potential audits and reviews by EU authorities.
4. Collaboration with Importers
Enhanced Data Sharing: Continue providing comprehensive emissions data to EU importers, ensuring all necessary information is available for them to comply with CBAM requirements.
Ongoing Support: Offer ongoing support and collaboration with importers to address any compliance challenges and streamline the import process.
By understanding and adhering to these requirements during both the transitional and full implementation phase, suppliers can ensure compliance with CBAM and maintain smooth trade relations with the EU.
Below you can find a presentation with more general Information on CBAM: