CBAM - the time to prepare is now!

The EU green goal with CBAM

• With CBAM, the EU seeks to levy a “tax” on carbon emissions during the production of goods imported into the European Union (the so-called “embedded emissions”).
• CBAM will supplement the EU Emission Trading System (“EU ETS”) in place, thereby lowering the exposure to carbon leakage. The CBAM certificates will be sold and purchased only by an EU authority and the price is linked to the price of the EU ETS certificates.
• The embedded emission of an imported good needs to be declared and offset with CBAM certificates.

The scope of CBAM – declarants

• CBAM applies to all so-called “declarants” meaning: the company in whose name the import declaration into the EU is filed.
• During the transitional period, declarants need to request authorisation to still be able to import CBAM goods once CBAM becomes fully effective on the 1^st of January 2026.

The scope of CBAM – appointed goods

• Currently, aluminium, iron, steel, fertilizers, electricity, hydrogen, certain precursors, and several products such as bolts and screws are in scope of CBAM.
• It is expected that this scope will be further broadened in order to encompass all ETS products by 2030.
• Which products fall under the scope of the aforementioned groups is determined by the commodity code of goods: Combined Nomenclature. The CBAM proposal includes a list of commodity codes in scope.

The scope of CBAM – countries

• In short: CBAM applies to all non-EU countries, except those that already levy a carbon emission tax that is recognized as such by the EU.
• Certain areas and countries from the European Economic Area (EEA) are excluded from the scope of CBAM (Iceland, Lichtenstein, Norway, Switzerland etc).

The expected timelines

Now - 1st of October 2023. Companies should need to use this time to set up control mechanisms that will allow them to calculate and report embedded emissions on products that are to be imported into the EU.

1st of October 2023  - 31st of December 2025. Companies need to collect the data on the embedded emissions of their imported (CBAM) goods and file quarterly CBAM report.

1^st of January 2025 – 31^st of December 2025. During the transitional period, importers of CBAM goods, are expected to register as “authorized CBAM declarant”.

1^st of January 2026 – onward. Go live of CBAM including enforcement measures.

Enforcement

If a company cannot calculate the embedded emissions of a good, so-called default values will apply. This is in fact a penalty, as the default values are calculated based on the average emission of the 10% worst performing plants of the exporting country for the specific good, including a markup. If even this is not possible to determine, then the value is based on the average emission of the 5% worst performing plants in the EU. Furthermore, penalties for non-compliance will arise from the go-live.

What to do now?

Lots of importers are expected to be affected by CBAM. We strongly advise you to check the following:

1. Check in whose name the goods are imported: will you be the declarant? or is that your indirect customs representative?
2. Check the commodity codes you use upon import into the EU and assess whether these are likely to fall within the (current) scope of CBAM?
3. Check the supply chain of the products and assess whether the countries involved might fall under the scope of CBAM?
4. Evaluate / analyse your entire supply chain in order to find or produce products with lower embedded carbon emissions.

Depending on the answers to the above questions, it is vital to use this time to set up control mechanisms that will allow you to calculate and report embedded emissions on products that are to be imported into the EU.

More information?

Do you need help to determine whether your business is affected or with the implementation of an internal control mechanism? Please contact Danny Janssen by email or by telephone +31 (0)88 277 13 20 or Iris Sijtsma by e-mail or by telephone +31 (0)88 277 2457. They will be happy to help you.