Carbon Border Adjustment Mechanism

KEY POINTS

The regulation:

• applies, during its initial transitional phase, to the following carbon-intensive imports:
  • cement, electricity, fertilisers, iron and steel, aluminium and chemicals (hydrogen) (Annex I contains further details);
• does not apply to imports:
  • with little value or for military use,
  • from countries and territories to which the EU ETS applies, or which have concluded an agreement with the EU fully linking the EU ETS with the emission trading system of that country or territory – currently these are Iceland, Liechtenstein, Norway and Switzerland and the territories of Büsingen, Ceuta, Heligoland, Livigno and Melilla (Annex III),
  • of electricity from non-EU countries whose domestic electricity market is integrated with the EU’s.

CBAM declarants

• Only an authorised CBAM declarant – either an importer or indirect customs representative who has successfully applied to their national authority for that status – may import goods covered by the regulation in the definitive period starting from 2026.
• CBAM applicants must provide basic information such as contact details, main economic activity and proof of compliance with customs and taxation rules during the previous 5 years.
• EU Member State national authorities keep a register of authorised CBAM declarants.
• CBAM declarants, starting in 2027, submit an annual declaration by 31 May on the previous year’s activities containing the following information:
  • quantity of each type of import;
  • total embedded emissions² in the goods;
  • number of CBAM certificates surrendered;
  • copies of various verification reports.

Emissions

• Annex IV sets out how to calculate a good’s embedded emissions.
• Annex II lists the goods for which only direct emissions are taken into account: iron and steel, aluminium, chemicals (hydrogen).

CBAM declarants:

• keep detailed records for 4 years of the information used to calculate embedded emissions (Annex V lists the requirements);
• ensure that the total embedded emissions submitted in their declaration are approved by an accredited verifier;
• may claim a reduction in the number of CBAM certificates they provide for embedded emissions to take account of the carbon price³ paid in the country of origin.

The European Commission, upon request by the operator of an installation in a non-EU country, records the necessary information on that operator and its installations in the CBAM registry.

National authorities

• Member States designate national authorities to implement the regulation. These exchange essential or relevant information among themselves.
• Official verifiers must either meet the requirements of Implementing Regulation (EU) 2018/2067 (see summary) or be approved by a national accreditation body.
• The Commission:
  • helps the national authorities and coordinates their work;
  • establishes a standardised electronic CBAM registry database of authorised declarants, which contains information on their CBAM certificates and other relevant details;
  • carries out risk-based controls on the information and transactions recorded in the registry;
  • reviews CBAM declarations to check the data provided and sends its findings to the relevant national authority, which may conduct its own review and determine, based on the Commission’s preliminary calculation, whether more CBAM certificates must be handed over;
  • monitors trade patterns to detect any attempts to avoid compliance with the regulation by, for instance, slightly modifying goods with the purpose of making them fall outside the scope of the regulation;
  • facilitates the exchange of information on fraudulent behaviour and the penalties imposed.
• National customs authorities ensure that only an authorised CBAM declarant may import goods and forward relevant information to the Commission.

CBAM certificates

Member States sell CBAM certificates on a common central platform, which the Commission establishes and manages, to authorised CBAM declarants in their country.

Information in the central platform on the sale, repurchase and cancellation of CBAM certificates is transferred to the CBAM registry at the end of each working day.

The Commission:

• ensures each certificate is given a unique identification number;
• calculates the weekly price of CBAM certificates as the average of the closing prices of EU ETS allowances on their auction platform;
• cancels annually on 1 July, without any compensation, any excess certificates that a CBAM declarant holds which were purchased during the year before the previous calendar year.

Authorised CBAM declarants:

• surrender annually by 31 May, starting in 2027, the number of certificates corresponding to the embedded emissions they declared the previous year;
• are liable for a penalty if they do not surrender the requisite number of certificates;
• ensure that the number of certificates they hold in the CBAM register at the end of each quarter corresponds to at least 80% of the embedded emissions in goods they have imported since the start of the calendar year;
• may request, by 30 June of each calendar year, to sell back to the Commission, via Member States, up to a third of the certificates they purchased the previous year, at their original price.

The Commission:

• adopts implementing and delegated acts;
• presents the following reports to the European Parliament and the Council of the European Union:
  • at least 1 year before the end of the transitional period (31 December 2025), on products further down the value chain of the goods in Annex I which could be included in the regulation,
  • before the end of the transitional period, on the possible extension of the regulation’s scope to other goods that risk carbon leakage, specifically organic chemicals and polymers, to other input materials (precursors), to indirect embedded emissions to the goods in Annex II, and to embedded emissions in the transport of the goods,
  • before 1 January 2028, and every 2 years thereafter, on the application of the regulation and functioning of the CBAM;
• provides:
  • an implementing regulation detailing the reporting requirements during the transitional period and the emission calculation methodology for CBAM goods,
  • guidance for EU importers and non-EU installations on the practical implementation of the new rules,
  • online training materials, webinars, tutorials and sector-specific fact sheets to support businesses.

Transitional period

• This runs from 1 October 2023 to 31 December 2025.
• Importers, or indirect customs representatives, submit a CBAM report to the Commission from 31 January 2024, on a quarterly basis, without having to buy or surrender any certificates.