CBAM Carbon Border Adjustment Mechanism

CBAM Implementation October 1st

EU to implement CBAM on October 1st 2023

 

An initiative of the European Customs Union, the CBAM (or Carbon Border Adjustment Mechanism) is set to be implemented on October 1st 2023. This date is the start of step 1 of a transition period which will last until December 31st 2025.
The EU wants to reduce emission with 55% by the year 2030. In order to get “Fit for 55”, CBAM will compensate for specific commodities which are classed as possible high CO2 emitters. As the importing party, you purchase a carbon certificate to compensate for the import. This certificate compensates specifically for the carbon price that would have been paid, had the cargo been produced under EU carbon rules. The current Emission Trading system factors in some of this, but under this old system there’s a question of “carbon leakage”, which the CBAM system fixes. Emission rules in the EU are becoming stricter, whereas in non-EU countries the rules remain the same, so the gap is increasing. CBAM is set to close that gap.

Currently the list consist of specific products and HS codes, as follows;
• Cement
• Iron and steel
• Aluminium
• Fertilizer
• Electricity
• Hydrogen
• Certain (undetermined) precursors
• Downstream products, such as:
HS code 7318, articles of iron or steel
HS code 7326, other articles of iron or steel
HS code 7616, articles of aluminium
As we approach the year 2030, the list will be expanded. All articles that are currently classed in the Emission Trading system will end up on CBAM as well. However, if your non-EU based manufacturer can prove they’ve already compensated for their emission, this may result in reductions for you as an EU based importer.
CBAM will apply to all cargo entering the EU from non-EU countries, but the United Kingdom has entered in to talks with the EU to see if they can be exempted.
Whether you do your own customs clearance upon import, or you use direct representation, you are officially the importing party and therefore responsible for CBAM adherence. Starting October 1st, at the end of each quarter you must report on CO2 emission outside of the EU for the production of your goods. Reports will go to the European Commission. For correct reporting you can use either source flows, such as activity information and laboratory analysis, or emission sources, by measuring levels of relevant emission.
The state of California already has a system similar to CBAM for the import of Electricity. Canada and Japan are also working on systems like CBAM.
Not all the inner workings of the CBAM scheme have been worked out yet. For example, the exact method of reporting has yet to be worked out. As new measures are put in place, Embassy Freight will keep you updated!
Your regular Embassy Freight contact will be happy to advise you on what CBAM means for you! We are also working on a CO2 Emission reporting tool for you, our customer.
More information on CBAM can be found on the European Union website:
https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en
More information on Fit for 55 can be found here:
https://www.consilium.europa.eu/nl/policies/green-deal/fit-for-55-the-eu-plan-for-a-green-transition/

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