On 10 May 2023, the Council of the European Union and the European Parliament adopted the new regulation (EU) 2023/956 establishing a carbon border adjustment mechanism (CBAM). CBAM is designed to address greenhouse gas emissions embedded in specific goods on their importation into the customs territory of the European Union (EU) to prevent the risk of carbon leakage. Carbon leakage occurs when, for cost reasons related to climate policies, businesses in certain industry sectors or subsectors transfer production to other countries, or import from other countries products that are more carbon-intensive than equivalent products manufactured in the EU.
The scope
CBAM will deal with specific goods, which will initially include: cement, electricity, fertilisers, iron and steel, aluminium , and hydrogen, from the production of which greenhouse gases are released into the atmosphere.
Reporting obligations
By 31 May of each year, authorised declarants will be required to submit a CBAM declaration for the previous year stating:
- the total quantity of each type of good imported during the preceding calendar year, expressed in tonnes, or, for electricity, in megawatt-hours;
- the total embedded emissions, expressed in tonnes of CO2e emissions, and verified by the EU accredited verifier;
- the total number of CBAM certificates to be surrendered, corresponding to the total embedded emissions;
- copies of verification reports, issued by accredited verifiers.
The process
Authorised CBAM declarants will be required to purchase CBAM certificates for surrendering. The provisions regarding purchases and the surrendering of CBAM certificates will apply from 1 January 2026.
Penalties
Penalties will be imposed on authorised CBAM declarants who fail to surrender, by 31 May of each year, the number of CBAM certificates corresponding to the emissions embedded in goods imported during the preceding calendar year.
Entry into force
The CBAM regulation (EU) 2023/956 came into force on 17 May 2023. The transitional phase, during which the implementing rules will be adopted by the CBAM Committee, will last from October 2023 until December 2025. CBAM in its final form will be phased in as from January 2026.