Do you import aluminum, steel, iron, fertilizers, electrical energy, hydrogen or cement into the EU? Are the goods produced outside the EU?
Your imports are now subject to the new Carbon Border Adjustment Mechanism (CBAM), with penalties (fines) for non-compliance.
But what is the CBAM, how will it work, and what should you do to prepare? Here’s what businesses need to know.
While the existing EU Emissions Trading System (ETS) covers EU countries, the CBAM will apply to goods produced outside the EU (except Iceland, Norway, Liechtenstein and Switzerland).
This addresses the problem of carbon leakage; that is, the situation where companies move the production of goods to countries with less stringent emissions policies, primarily to save costs associated with carbon pricing.
Unlike the ETS’s ‘cap-and-trade’ system, the CBAM (at least in its initial form) won’t set caps on imports or emissions, and there’ll be no trading of carbon permits.
The European Commission has agreed that the CBAM's transitional phase starts on 1 October 2023 and ends on 1 January 2026.
It’s November 2023 and you’re importing 1,000 tonnes of aluminum from South Africa to Rotterdam. You'll need to:
At the end of the quarter (by 31 January 2024):
This process repeats every quarter (30 April 2024 for the second report). The first two reports can be updated until 31 July 2024 if the importer gets better quality data by then.
Complete your carbon reporting and engage with suppliers on CarbonChain's trusted carbon accounting platform. Our new dedicated CBAM solution includes:
Measure and report CBAM emissions with confidence:
A product’s emissions can vary hugely between different countries and production facilities. Quantify the upcoming cost of the CBAM and start decarbonizing your supply chains:
The CBAM is not officially a carbon tax. However, from 2026 it will function in similar ways to a carbon tax, by requiring companies to make financial payments (or 'adjustments') according to the greenhouse gas (GHG) emissions embedded in their imports of aluminum, steel, fertilizers, electrical energy, hydrogen and cement. Importers will report these emissions, then purchase and surrender CBAM certificates at the same cost per tonne of carbon dioxide equivalent as the average EU ETS carbon price for the past week.
The CBAM regulation has been officially passed and has entered into force. It was published in the Official Journal of the EU on 16 May 2023. The transitional phase will begin on 1 October 2023 and the permanent system enters into force on 1 January 2026.
The CBAM covers high-emitting commodities including electric energy production, cement, aluminum, fertilizers, iron, steel and hydrogen. Certain precursors and other downstream products like screws and bolts are likely to be included.
The EU Emissions Trading System (ETS) sets a cap on the amount of greenhouse gas (GHG) emissions that can be released from industrial installations in certain sectors within the EU. Allowances are bought on the ETS trading market.
The CBAM complements the EU ETS by covering goods imported from outside the EU. When fully phased in, will cover more than half of the emissions in ETS-covered sectors. Unlike the ETS, there will be no 'cap and trade' system under the CBAM.
The CBAM certificate prices will mirror the EU ETS price (averaged on a weekly basis).
During the transitional period, importers must report the indirection emissions of all goods.
In the CBAM transitional period implementing regulation, upstream emissions are included for certain goods only: i.e. complex goods.
A simple good doesn’t have any embodied emissions from upstream materials or energy sources. The only emissions associated with a simple good are those directly related to its production process.
A complex good on the other hand does have some embodied emissions from upstream materials.
In the case of aluminum, aluminum ingot is a simple good: emissions from the production of bauxite, alumina, anodes, and all other materials and energy used in the production of the ingot are not included in the calculation of carbon emissions.
Products that use aluminum ingot as an input are complex goods: the production of the ingot needs to be included in the calculation of the carbon emissions associated with these products.
National Competent Authorities (who can authorise importers as CBAM declarants) are provisionally as follows, as of 17 November 2023. Contact details and more information are available here.
Office for the National Emissions Trading System, Customers Authority (Austria)
Federal Public Service for Health, Food Chain Safety and Environment (Belgium)
Executive Environment Agency (Bulgaria)
Ministry of Agriculture, Natural Resources and Environment (Cyprus)
Ministry of the Environment (Czech Republic)
Danish Energy Agency (Denmark)
Environmental Board (Estonia)
Ministry for Ecological Transition and Demographic Challenge (Spain)
Customs Authority (Helsinki)
Département de lutte contre l’effet de serreDirection Générale de l’Energie et du Climat (DGEC) | Ministère de la Transition écologique et cohésion desterritoires (France)
General Directorate of the Financial and Economic Crime Unit | Ministry of National Economy and Finance (Greece)
Customs Administration, Ministry of Finance (Croatia)
National Climate Protection Authority (HU)
Environmental Protection Agency (Ireland)
Ministry of Environment and Energy Security (Italy)
Administration de l’environnement (Luxembourg)
Valsts ieņēmumu dienestsState Revenue Service (Latvia)
Malta Resources Authority (Malta)
Dutch Emissions Authority (The Netherlands)
National Centre for Emissions Management (Poland)
Portuguese Environment Agency (Portugal)
Ministry of Finance (Romania)
Swedish Environment Protection Agency (Sweden)
Ministry of Environment of the Slovak Republic (Slovakia)
The UK CBAM is a separate but similar mechanism to address carbon leakage. Learn more about the UK CBAM.
Default values for CBAM will be made available on the transitional registry by end of 2023. These are global average values for each CN (product) code.
4 key things to note:
During the transition period (until 1 January 2026), importers will face fines for not declaring emissions or for under-declaring emissions.
The exact fines are to be determined, but will be between 10-50 euros per tonne of carbon dioxide equivalent not declared or under-declared.
Until July 2024, importers can declare using default values, but after that, primary data will be needed (unless for up to 20% of precursor emissions where those are covered by CBAM), in order to avoid fines.