What is the Carbon Border Adjustment Mechanism (CBAM)?
The Carbon Border Adjustment Mechanism (CBAM) initiative is part of the “Fit for 55%” legislative package. CBAM is intended to serve as a key element of the Union’s package of instruments to counteract the risk of carbon leakage resulting from the Union’s increased climate ambition to achieve the Union’s climate neutrality objective by 2050 at the latest, in line with the Paris Agreement.
The CBAM aims to prevent the risk of carbon leakage. At the same time, this regulation would encourage manufacturers from third countries to use technologies that are more efficient in terms of greenhouse gas emissions to produce fewer emissions. Therefore, the CBAM is expected to effectively support the reduction of greenhouse gas emissions in third countries.
The CBAM replaces the existing mechanisms for dealing with the risk of carbon leakage in sectors or sub-sectors where such a risk exists with a different approach, i.e. setting the same carbon price for imported and domestic products in order to maintain competitiveness between the EU and its trading partners.
What is the timeframe for CBAM?
With the entry into force of the CBAM Regulation (2023/956) on 17 May 2023, the transition period for its application began on 1 October 2023, with the deadline for the publication of the first quarterly reports running until 31 January 2024 (for goods imported in the fourth quarter of 2023). The transitional period lasts until the end of 2025, with the last report to be submitted by 31 January 2026 for goods imported in the fourth quarter of 2025. Full application of the CBAM will begin after the transition period.
What must be stated in the CBAM report?
Implementing Regulation 2023/1773 sets out in detail the reporting obligations for EU companies importing goods covered by CBAM and the methodology for calculating the embedded emissions generated in the production of the imported goods during the transition period.
In summary, importers must provide the following information in the CBAM report:
- The total quantity of each type of goods, expressed in megawatt hours (MWh) for electricity and in tonnes for other goods, per facility producing the goods in the country of origin.
- The total actual embedded emissions, expressed in tonnes of CO2e emissions per MWh of electricity or for other goods in tonnes of CO2e emissions per tonne of each type of goods.
- The total indirect emissions, including the amount of electricity consumed and the applicable emission factor.
- The carbon price due in a country of origin for the emissions embedded in the imported goods, taking into account appropriate rebates or other forms of compensation.
Transition period: 1 October 2023 – 31 December 2025.
Deadline for submission of quarterly reports: one month after the end of each quarter.
Sectors: Sectors with high CO2 emissions, such as steel, cement, aluminium, fertilisers, electricity and hydrogen.
Methodology: The principle of selecting the best available data source always applies to determining embedded raw material emissions and the underlying data sets, such as emissions associated with individual material flows or emission sources or measurable heat quantities.
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