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The Carbon Border Adjustment Mechanism (CBAM) is a significant policy tool introduced by the European Union (EU) to address the global challenge of climate change. It aims to combat the risk of "carbon leakage" by imposing a carbon levy on specific imported products from non-EU and non-EFTA countries, directly tied to the carbon price under the EU Emissions Trading System (ETS). The EU, committed to fighting climate change, outlined ambitious targets in the European Green Deal, aiming for a 55% net reduction in greenhouse gas emissions by 2030 and climate neutrality by 2050. To support these goals, the EU introduced the Fit for 55 policy proposals, including the CBAM, to prevent carbon leakage resulting from differing environmental standards in non-EU countries.
The CBAM Regulation was signed by the European Parliament and the Council in May 2023, with a transitional period starting on October 1, 2023. The CBAM will gradually be implemented, initially focusing on sectors at high risk of carbon leakage, such as iron/steel, cement, and electricity. The mechanism aligns with international commitments and WTO rules and is designed to encourage both non-EU producers to adopt greener practices and countries to introduce carbon pricing measures. Detailed guidance and resources are provided by the European Commission for the CBAM application during the transitional period.
The CBAM will gradually adjust to reflect changes in the EU ETS, ensuring fair treatment for imported goods compared to EU products. It applies primarily to basic materials and some finished products, with a review planned at the end of the transitional period to assess potential expansion to other goods and sectors within the ETS. Importantly, the CBAM Regulation applies only to goods originating from third countries and imported into the EU customs territory.
The Carbon Border Adjustment Mechanism (CBAM) is a comprehensive policy implemented by the European Union (EU) to address carbon leakage and combat climate change. It applies to imports from all non-EU countries, with some exclusions for specific countries participating in the EU Emissions Trading System (ETS) or having linked emission trading systems. CBAM also covers electricity imports from third countries, although exemptions may apply for fully integrated electricity markets with strict obligations. During the transitional period, reporting declarants must quarterly report embedded emissions in CBAM goods without financial adjustment, with penalties for non-compliance. Guidance documents, webinars, and materials are available to assist with reporting. The use of a communication template is recommended but not compulsory for determining embedded emissions. Liability lies with the reporting declarant, who may be the importer or an indirect customs representative. CBAM reporting does not apply to goods imported into Switzerland or the European Economic Area (EEA), but it does apply to goods imported into the EU Customs Union. National competent authorities and the Commission provide support for CBAM implementation, with a list of authorities available on the dedicated CBAM webpage.
The Carbon Border Adjustment Mechanism (CBAM) is a significant policy tool introduced by the European Union (EU) to address the global challenge of climate change. It aims to combat the risk of "carbon leakage" by imposing a carbon levy on specific imported products from non-EU and non-EFTA countries, directly tied to the carbon price under the EU Emissions Trading System (ETS). The EU, committed to fighting climate change, outlined ambitious targets in the European Green Deal, aiming for a 55% net reduction in greenhouse gas emissions by 2030 and climate neutrality by 2050. To support these goals, the EU introduced the Fit for 55 policy proposals, including the CBAM, to prevent carbon leakage resulting from differing environmental standards in non-EU countries.
The CBAM Regulation was signed by the European Parliament and the Council in May 2023, with a transitional period starting on October 1, 2023. The CBAM will gradually be implemented, initially focusing on sectors at high risk of carbon leakage, such as iron/steel, cement, and electricity. The mechanism aligns with international commitments and WTO rules and is designed to encourage both non-EU producers to adopt greener practices and countries to introduce carbon pricing measures. Detailed guidance and resources are provided by the European Commission for the CBAM application during the transitional period.
The CBAM will gradually adjust to reflect changes in the EU ETS, ensuring fair treatment for imported goods compared to EU products. It applies primarily to basic materials and some finished products, with a review planned at the end of the transitional period to assess potential expansion to other goods and sectors within the ETS. Importantly, the CBAM Regulation applies only to goods originating from third countries and imported into the EU customs territory.
Under the CBAM regulations, importers can appoint indirect customs representatives to handle CBAM reporting obligations. Each representative is accountable for specific CBAM goods declared, indicated by their unique Economic Operators Registration and Identification (EORI) number. Indirect customs representatives can act for multiple importers but must submit a single quarterly CBAM report for all goods declared. While CBAM goods are usually attributed to different subsidiaries, multinational corporations can centralize CBAM reporting by appointing one representative. However, the appointed entity must still fulfill customs obligations for the goods covered in the CBAM report. Additionally, one group entity can act as a service provider for CBAM reporting, but each group entity remains liable for the goods they import.
During the transitional period of the CBAM, from 1 October 2023 to 31 December 2025, the importer shall submit a quarterly CBAM report.
REPORTING PERIOD SUBMISSION DUE BY
2023: October – December 2024: January 31
2024: January – March 2024: April 30
2024: April – June 2024: July 31
2024: July – September 2024: October 31
2024: October – December 2025: January 31
2025: January – March 2025: April 30
2025: April – June 2025: July 31
2025: July – September 2025: October 31
2025: October – December 2026: January 31
The report should include various information as outlined in Article 35 of the Regulation, such as the quantity of CBAM goods, total embedded emissions, total indirect emissions, and the carbon price for embedded emissions in the imported goods, considering any applicable rebates or compensation.
During the transitional period of the Carbon Border Adjustment Mechanism (CBAM), reporting declarants have certain options and obligations. They can request delayed submission of CBAM reports in case of technical errors, and they have the opportunity to modify and correct their first three CBAM reports until July 31, 2024. No penalties will be imposed for difficulties in submitting the first CBAM report. Importantly, small quantities of CBAM goods may be exempt from reporting if the de minimis exemption applies, which is determined by the total intrinsic value of the goods not exceeding EUR 150 in one consignment. The CBAM applies mostly to basic materials and goods, with limited applicability to finished products. Additionally, individuals purchasing goods from EU sellers via couriers are not subject to CBAM reporting. Reporting declarants are generally required to report information on the operators or installations where CBAM goods were produced, with some exceptions until June 30, 2024.
Each Member State appoints a national competent authority (NCA) responsible for enforcing CBAM rules. NCAs are tasked with verifying the quality of CBAM quarterly reports, engaging with reporting declarants as needed, ensuring compliance, and imposing penalties for non-compliance. In the definitive period starting from 2025, NCAs will also grant the status of 'authorized CBAM declarant.
During the transitional period, importers of CBAM goods are not required to obtain authorization to import these goods into the EU. Customs authorities will inform importers of their reporting obligations upon importation. Additionally, mandatory verification by an external independent body will only be required starting from 2026. Secondary legislation for the definitive period will establish rules for verification based on data collected during the transitional period.
Each CBAM sector has specific embedded emissions that need to be reported.
| Issue | CBAm good | |||||
|---|---|---|---|---|---|---|
|
|
Content |
Iron and Steel |
Aluminium |
Fertilisers |
Hydrogen |
Electricity |
|
Reporting |
(per) Tonne of good |
(per) MWh |
||||
|
Greenhouse |
Only CO2 |
CO2 (plus nitrous oxide for some fertiliser goods |
Only CO2 |
CO2 (plus perfluorocar bons (PFCs) for some aluminium goods |
Only CO2 |
Only CO2 |
|
Emission coverage during transitional period |
Direct and indirect |
Only direct |
||||
|
Emission coverage during definitive period |
Direct and indirect |
Only direct, subject to review |
Only direct |
|||
|
Determination of direct embedded emissions |
Based on actual emissions, but estimations (including default values) can be used for up to 100% of the specific direct embedded emissions for imports until 30 June 2024 (i.e. CВАМ reports due until 31 July 2024) and for up to 20% of the total specific embedded emissions for imports until 31 December 2025 |
Based on default values, unless several cumulative conditions are met |
||||
|
Determination of indirect embedded emissions |
Based on actual electricity consumption and default emission factors for electricity, unless conditions are met (i.e. direct technical connection or power purchase agreement). Estimations (including default values) can be used for up to 100% of the specific indirect embedded emissions for imports until 30 June |
Not applicable |
||||
The CBAM declarant is required to include information from Annex I of the Implementing Regulation in the CBAM report. To ensure they have all necessary information, the reporting declarant should request Annex IV information from the producer. The Commission provides an optional communication template for this purpose. Original documents are not required; only the necessary information should be submitted through the CBAM Transitional Registry. Transparency is emphasized, requiring records of relevant data to be kept for at least four years after the reporting period. If the reporting declarant acts as both importer and indirect customs representative, they still submit a single quarterly CBAM report.
The CBAM Regulation defines a carbon price as the monetary amount paid in a third country for carbon emissions reduction schemes, applicable during the production of goods. During the transitional period, reporting declarants must report the effective carbon price in the jurisdiction where the CBAM goods were produced. In the definitive period, this disclosure will inform importers to prevent double pricing of embedded emissions. The Commission will conduct screenings of CBAM reports during the transitional period, flagging incomplete or suspicious reports for review by competent national authorities. Corrections to submitted reports are allowed until two months after the reporting quarter, with longer correction periods permitted for the first two quarterly reports.
The Commission has established the CBAM Transitional Registry to efficiently handle reporting obligations during a transitional period. This electronic database collects reported information and ensures confidentiality and accessibility. Importers can connect to it via a provided link. It facilitates communication between the Commission, competent authorities, customs authorities, and reporting declarants. Information collected is not used for enforcement but for data analysis during the transitional period. The Registry operates independently of the EU Customs Trader Portal but may integrate with existing importer accounts depending on Member State regulations. Confidentiality is maintained, except for certain operator details. Professional secrecy obligations apply to national authorities. While some data is necessary to verify emissions, much of it is optional. The Registry specifies mandatory and optional entries. Operators can choose what information to share during the transitional period, providing flexibility and sensitivity to disclosure. The Commission is considering separate access for producers in the definitive period to submit information directly to the Registry.
To become reporting declarants for CBAM purposes, economic operators need to contact the national competent authority (NCA) of the Member State where they are established. The NCAs provide access to the CBAM Transitional Registry, which may require new login credentials or the use of existing accounts. The registry has separate production and conformance environments, with the conformance environment serving as a test environment. Multiple user accounts can be linked to the same EORI number, but only one user can edit a specific CBAM quarterly report at a time. Reporting declarants can delegate access to service providers who can fill in the CBAM report on their behalf. Access to the CBAM Transitional Registry is limited to reporting declarants, competent authorities, customs authorities, and the European Commission. Quarterly reports need to be filled in per importer, per CN code, and per installation. They can be manually entered or uploaded via an XML structure. Mandatory fields are marked with an asterisk, and detailed instructions can be found in the CBAM Transitional Registry user manual. Draft reports can be saved without all mandatory elements, but all mandatory elements are required for submission.
The relevant time period for calculating embedded emissions under CBAM is typically a calendar year, although other periods such as a fiscal year can be used if they ensure similar coverage and cover at least three months. For the CBAM report due in the first quarter of the year, data from the previous year should be used. If data for the previous year is not yet available by the end of January/February, data from the year before can be used as an alternative.
Under the Carbon Border Adjustment Mechanism (CBAM), there are two types of goods: simple and complex. Simple goods are produced from input materials with zero embedded emissions, while complex goods require the inclusion of embedded emissions of relevant precursors used in their production. Direct emissions cover emissions from the production processes, including heating and cooling, while indirect emissions relate to the production of consumed electricity. During the transitional phase, importers are required to report both direct and indirect emissions for all goods under the CBAM scope. The scope will be limited to direct emissions for certain products starting on January 1, 2026, with importers of cement and fertilizers still required to declare both direct and indirect emissions. Relevant precursors produced in the EU also need to be accounted for in determining embedded emissions. The transitional period allows for the use of alternative methods to determine embedded emissions, with default reference values permitted until July 31, 2024, if necessary. Additionally, actual emission factors for electricity may be used based on a direct technical link or a power purchase agreement between the producer and consumer.
During the transitional period, the general rule is to use default values provided by the Commission for the emission factor for electricity. However, actual emission factors can be used if certain conditions are met, such as the existence of a direct technical link or a power purchase agreement. Market-based specific emission factors, determined by Guarantees of Origin or Green Certificates, cannot be used to justify the use of actual emission factors. Further information can be found in Section D.2 of Annex III to the CBAM Implementing Regulation and in the guidance document for non-EU installations.
Emissions resulting from transport on conveyor belts, pipelines, and other stationary equipment are included in the calculation of embedded emissions under CBAM. However, emissions resulting from the use of mobile machinery such as trucks and forklifts are excluded. These rules align with those of the EU Emissions Trading System (ETS).
CCUS techniques can be considered when determining embedded emissions in CBAM goods, provided certain criteria are met. The captured carbon dioxide must be used to produce products in which it is permanently chemically bound or transferred to a long-term geological storage site.
Good cooperation between third-country producers and reporting declarants is crucial in the CBAM process. The Commission has published guidance and templates to assist producers in determining the embedded emissions of the goods they produce. However, the reporting declarant ultimately bears the responsibility for ensuring the completeness and correctness of CBAM reports. They are liable and may face penalties for non-compliance with CBAM reporting obligations.
During the transitional period, declarants may rely on default values provided by the Commission for the first three reporting periods without quantitative limits. For imports until June 30, 2024, 100% of the total embedded emissions may be determined using default values. From July 1, 2024, to December 31, 2025, estimated values may be used, but a quantitative limit applies. For complex goods, up to 20% of the total embedded emissions, considering the entire production chain, may be determined using estimations. The Commission will assess the default values based on the data collected by the end of the transitional period in 2025.
The EU's Joint Research Centre (JRC) has published estimations of greenhouse gas (GHG) emission intensities for goods from energy-intensive industries such as iron and steel, fertilizers, aluminum, and cement in the EU and its main trading partners. The JRC report provides values disaggregated between direct and indirect emissions and serves as scientific support for the implementation of CBAM. The estimated GHG emission intensities were used as input for setting default values during the transitional period.
The transitional period of the Carbon Border Adjustment Mechanism (CBAM) allows for certain flexibilities in reporting methods until specific dates. Until December 31, 2024, reporting declarants can use alternative methods, such as a carbon pricing scheme, compulsory emission monitoring scheme, or an emission monitoring scheme at the installation. Until June 30, 2024, any other reference method, including default values, can be used if the reporting declarant does not have all necessary information. The methodology for accounting for emissions resulting from the use of biomass follows the same rules as the EU Emissions Trading System (ETS). Decimal places and rounding in calculations should retain all "significant" digits throughout the complete calculation. Additionally, the gross weight or net weight of imported CBAM goods should be used for the calculation of embedded emissions. The EU's Joint Research Centre (JRC) has provided estimations of greenhouse gas (GHG) emission intensities for energy-intensive industries, supporting the implementation of CBAM.
During imports until June 30, 2024, the embedded emissions of stock items can be estimated using default values published by the European Commission. However, after this date, it is necessary to report actual data. In cases where data is lacking for old spare parts or stock items, data for similar or identical goods can be submitted for imports after June 30, 2024. All inputs, outputs, and corresponding emissions in an installation should generally be attributed to a production process, unless they pertain to non-CBAM goods. It is important to ensure that the relevant emissions of an installation are fully covered by the production processes for CBAM goods and, where applicable, non-CBAM goods. For installations with multiple relevant production processes where shared equipment, source streams, or emission sources are involved, inputs, outputs, and emissions should be allocated to the different production processes based on their appropriate share. For example, if an installation produces purified water and 60% of that water is utilized for the production of a CBAM good, then 60% of the direct and indirect emissions related to water purification should be attributed to the production of the CBAM good. Additionally, if a saleable off-spec product complies with the relevant CN codes for the CBAM goods category of the production process, it should be included in the activity level determination.
When a reaction results in the generation of CO2, such as through the oxidation of organic chemicals or the conversion of natural gas to hydrogen, the emitted CO2 is considered as direct emissions. The CO2 bound in urea does not count as negative emissions under the EU Emissions Trading System (ETS) or for reporting emissions under the Carbon Border Adjustment Mechanism (CBAM). This means that the CO2 generated in ammonia production and transferred to urea production is counted as emissions under the ammonia production.
When it comes to reporting under the Carbon Border Adjustment Mechanism (CBAM), the importer listed in the customs declaration is generally considered the reporting declarant. However, for electricity imports where transmission capacity is allocated explicitly, the person allocated the capacity and nominating it for import is regarded as the CBAM reporting declarant. The emission factor for electricity represents the average emissions of all electricity-generating sources in a geographic area, while the CO2 emission factor represents the average emissions from fossil fuel combustion. During the transitional period, the CO2 emission factor is used to determine direct embedded emissions for electricity as a CBAM good, while the emission factor for electricity is used for indirect emissions of other CBAM goods. Default values for imported electricity are determined based on data from the International Energy Agency (IEA) and provided in the CBAM Transitional Registry. Actual emissions data from specific electricity-producing installations can be used if certain criteria are met.
The connection between hydrogen as a CBAM (Carbon Border Adjustment Mechanism) good and the Renewable Energy Directive (RED II) is as follows: According to the Implementing Regulation, if the produced hydrogen is certified to comply with the Commission Delegated Regulation (EU) 2023/1184 as a renewable fuel of non-biological origin (RFNBO) under the Renewable Energy Directive, an emission factor of zero for the electricity used in its production can be applied. This certification allows for the demonstration of zero indirect emissions, eliminating the need for double certification. However, without such certification, the indirect emissions of hydrogen must be determined in accordance with Annex III of the Implementing Regulation.
When calculating embedded emissions for steel products, auxiliary processes like lime kilns and coke oven plants are not included in the system boundaries for iron and steel production, as their outputs (lime and coke) are not CBAM goods. However, production of auxiliaries such as purified water and compressed air is included. Iron ore pellets fall within the scope of CBAM under CN code 2601 12 00, as they are considered a precursor in the production of pig iron or Direct Reduced Iron (DRI).
The "steel mill identification number" or "heat number" in the CBAM report indicates the mill/furnace where the steel product originated, and while optional, it can be provided if available, with comments suggested if there are many different heat numbers.
Specific embedded emissions for aluminum or steel goods are typically determined per aggregated goods category, unless different production routes are utilized in an installation. Aggregated goods categories may encompass goods with different CN codes, and although variations like alloying elements or input scrap share may occur within the same CN code, reporting during the transitional period can be done per aggregated goods category. Operators can voluntarily opt for a more detailed determination of specific embedded emissions for certain goods or groups of goods.
During the transitional period, importers of CBAM goods can appoint direct or indirect customs representatives as outlined in Article 5 of the CBAM Regulation. Direct representation means the importer is subject to CBAM obligations while the customs representative handles declarations. If an EU-based importer appoints an indirect customs representative who agrees, reporting obligations apply to the indirect representative. Importers cannot have multiple indirect customs representatives for CBAM goods under the same declaration. EU-based importers can use direct customs representatives for customs obligations and hire service providers for CBAM reporting. The importer delegates access to the CBAM Transitional Registry to the service provider but remains legally liable for CBAM obligations. For importers outside the EU, the indirect customs representative is responsible for both customs and CBAM declarations. If an indirect custom representative refuses CBAM reporting, they must notify the importer, remaining liable if reporting is not fulfilled. Even if a direct customs representative is appointed, the importer retains CBAM reporting obligations. Importers can use service providers for CBAM reports but are ultimately responsible for compliance.
The lodging of a customs declaration by an importer or customs representative makes them responsible for the accuracy and completeness of the information, authenticity of supporting documents, and compliance with customs procedures. This responsibility extends to any other required information provided to customs authorities. During the transitional period, the CBAM declarant is responsible for submitting quarterly reports containing information on embedded emissions for all CBAM goods imported by the company, even if imported in different Member States. Goods released for free circulation into the EU are subject to CBAM requirements, and controls for compliance should precede their release. Non-compliance may lead to confiscation, sale, destruction, or placement under customs warehousing. CBAM obligations apply only to goods released for free circulation, not to goods in transit or under suspensive regimes. Tariff suspensions do not affect CBAM obligations. Indirect customs representatives agreeing to act as reporting declarants for some goods must submit separate customs declarations for those goods and any others they do not represent.
During the definitive period, the Carbon Border Adjustment Mechanism (CBAM) will operate similarly to the EU Emissions Trading System (ETS), where importers purchase certificates based on the weekly average auction price of EU ETS allowances. Importers or their representatives must register for CBAM and buy certificates corresponding to the embedded emissions of their goods. Certificates can also be purchased throughout the year. Member States will sell CBAM certificates to authorized CBAM declarants via a central platform, and these certificates must be surrendered via the CBAM registry by May 31 each year for the previous year's embedded emissions. Reporting for embedded emissions will continue through the CBAM registry. During the definitive period, only authorized CBAM declarants can import goods into the EU, which may be either the importer or the indirect customs representative, depending on their agreement. Authorized CBAM declarants must buy and surrender CBAM certificates corresponding to the total embedded emissions of imported goods and submit annual CBAM reports. If the importer is not established in a Member State and the indirect customs representative is not an authorized CBAM declarant, CBAM goods cannot be imported into the EU.
After 2026, the import of Carbon Border Adjustment Mechanism (CBAM) items will be prohibited if the EU importer is not an authorized CBAM declarant. According to Article 25 of the CBAM Regulation, customs authorities will not allow the importation of goods by any person other than an authorized CBAM declarant. During the definitive period, the CBAM report must be submitted through the CBAM Registry by the authorized CBAM declarant. The 'CBAM Transitional Registry' will be replaced by the 'CBAM Registry'. To access the CBAM Registry, importers need to have their application authorized by the competent authority. Once authorized, each CBAM declarant will be assigned a CBAM account number by the Commission, granting them access to the registry.
During the transitional and definitive periods of the Carbon Border Adjustment Mechanism (CBAM), the European Commission will manage the CBAM Registry, review CBAM reports, and monitor the implementation of CBAM to prevent circumvention and non-compliance. Additionally, the Commission will oversee the central platform for the sale of CBAM certificates to importers. After the transitional period, a full review of CBAM implementation will be conducted, potentially leading to an extension of the CBAM scope to include other goods and sectors covered by the EU Emissions Trading System (ETS) at risk of carbon leakage. The process for becoming an authorized CBAM declarant involves meeting specific criteria and undergoing a consultation procedure. Non-EU producers are required to provide embedded emissions information for CBAM goods to EU importers, who may use default values if this information is unavailable. The Commission will continuously monitor reported emissions and trade to identify circumvention practices and non-compliance. During the definitive period, declared embedded emissions will be verified by accredited verifiers, and penalties will be imposed for non-compliance with CBAM obligations. The Commission will also work on secondary legislation to establish rules for accreditation and verification, including the accreditation of CBAM verifiers by National Accreditation Bodies (NABs) in EU Member States. Additionally, authorized CBAM declarants may claim a reduction in the number of CBAM certificates based on the carbon price effectively paid in the country of origin. The Commission will prepare an implementing act before the end of the transitional period to provide additional details for the calculation of the carbon price effectively paid in the country of origin.