Phased implementation for the European Union’s (EU) landmark tool to combat carbon leakage, the Carbon Based Adjustment Mechanism (CBAM) became effective on Oct. 1, 2023, followed by the filing of the first quarterly report on Jan. 31, 2024.This means that EU importers of certain cement, iron, steel, aluminum, fertilizers or electricity products must begin reporting embedded greenhouse gas emissions in the production of these products.
The EU’s landmark tool to combat carbon leakage, the Carbon Based Adjustment Mechanism (CBAM), began its transitional phase on Oct. 1, 2023 which will run through Dec. 31, 2025. This period introduces new compliance and quarterly reporting requirements for entities in the EU that import certain cement, iron, steel, aluminum, fertilizers or electricity products from non-EU suppliers. As such, EU importers must report on the volume of greenhouse gas emissions (GHGs) embedded in the production of these particular products without making any payments. Reports are due at the end of the month for the preceding quarter. This first report was due on Jan. 31, 2024.
The reporting obligations under the CBAM are complex and require a new type of collaboration between supply chain partners. Gradually phasing in the requirements allows suppliers of these products to the EU to familiarize themselves with the new regulatory framework and provide the requisite data to their customers. It also allows the European Commission (EC) to use the information gathered from the reports to refine the methodology and assess the feasibility of including additional downstream products for the go-live period that starts in 2026.
CBAM requires the declarant (i.e., importer or its indirect customs representative) to report embedded emissions data on materials subject to CBAM based on actual data it receives from its suppliers, including:
For the first three quarterly reports, if a declarant cannot obtain the actual values, they may report default values that reflect average emissions that are published by the EC, along with a short explanation of why actual data is not used. This provision allows declarants to be able to report while they set up their CBAM processes and gather actual values from suppliers. The EC also allows declarants to modify and resubmit their first two CBAM reports through July 31, 2024. However, only submitted reports may be modified, so it is important for a declarant to submit reports even if they are incomplete or incorrect.
From Aug. 1, 2024 through the end of 2025, the declarant may only use default values for up to 20% of the embedded emissions of imports of complex goods. The remaining 80% of emissions data will need to be reported based on actual values provided from suppliers and/or manufacturers.
Once the definitive system becomes effective on Jan. 1, 2026, importers of CBAM goods will no longer need to file quarterly reports, but rather one annual report due May 31. Additionally, companies will need to obtain an authorization to import CBAM goods and buy and surrender CBAM certificates to offset embedded GHG emissions on imported goods. There will be a gradual phase-in for certificates starting at 3.5%, increasing to 49.5% in 2030 and 100% coverage in 2034.
With the new CBAM reporting requirement in effect, impacted EU importers should take immediate steps to prepare. From stakeholder mapping and engagement to managing data, RSM can assist companies manage the process, including:
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