The European Union’s firm commitment to environmental protection and the fight against climate change has materialised over the last few years in ambitious regulations. For example, the greenhouse gas emissions trading scheme, which aims to ensure that products manufactured in the EU incorporate the cost of the carbon emitted in their production.
These regulations have raised concerns about the risk of carbon leakage. This concept refers to the fact that EU levies can lead to a relocation of production to other countries with fewer environmental restrictions. This could even lead to a global increase in carbon emissions.
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Level playing field for European and imported products
To address this risk, the Regulation (EU) 2023/956 of the European Parliament and of the Council of 10 May 2023 establishes a Carbon Border Adjustment Mechanism (CBAM). Under it, certain imports may only be made by persons or companies that have the status of authorised declarant and purchase sufficient certificates to cover the emissions implicit in the imported goods.
Ultimately, the CBAM aims to ensure that imported products are subject to a regime that applies carbon costs similar to those borne by products manufactured in the EU.
This is a new development that will be implemented in the coming years. At Confianz we are helping our clients to analyse it in depth, as in some cases it could mean a loss of profitability that could endanger the business.
Obligations of EU importers
The Carbon Border Adjustment Mechanism (CBAM) is similar to emissions trading schemes. This instrument requires importers:
- Obtain authorised declarant status prior to import;
- Declare the implied emissions of imported goods;
- Ensure that the declared emissions are verified by an accredited verifier;
- Acquire and present the relevant certificates.
To which goods does the CBAM apply
The CBAM applies to goods that meet two conditions:
- They are listed in Annex I of the Regulation. That is to say, those corresponding to the cement, electricity, fertilisers, foundry, iron, steel, aluminium and hydrogen sectors. Products processed from these goods as a result of inward processing arrangements are also concerned.
- They originate in a non-EU country. However, goods from Iceland, Liechtenstein, Norway, Switzerland, Büsingen, Heligoland, Livigno, Ceuta and Melilla are excluded from this rule.
How CBAM works
As we have already seen, persons or companies wishing to import goods affected by the CBAM are obliged to register as an authorised declarant in the CBAM Register. In this way, they obtain a unique CBAM account number, which is essential for the customs authorities to allow the import.
Each year, by 31 May at the latest, authorised declarants must submit a declaration for the previous calendar year, indicating:
- The total quantity of each type of imported goods.
- The emissions implied by such goods validated by an accredited verifier.
- A copy of the verification report issued by an accredited verifier.
- The total number of CBAM certificates to be delivered within the same timeframe.
When does the CBAM enters into force
Between 1 October 2023 and 31 December 2025, a transitional period is opened in which the importer must already submit a quarterly report on imported goods to the Commission.
From 31 December 2024, the provisions concerning the application for and granting of authorised declarant status shall apply.
From 2027 onwards (for 2026 operations), reporting of implied emissions and surrender of CBAM certificates will be mandatory.