The Carbon Border Adjustment Mechanism (CBAM) is an EU policy designed to prevent carbon leakage by imposing a carbon price on imports of certain goods into the EU, similar to the EU Emissions Trading System (ETS). Here’s a detailed guide on how and when companies can comply:
Key Dates and Phases:
Transitional Phase (1 October 2023 – 31 December 2025):
- Focuses on reporting rather than financial adjustments.
- Importers must submit quarterly reports detailing the direct and indirect emissions embedded in their imported goods.
Definitive Phase (From 1 January 2026):
- Importers will need to purchase CBAM certificates corresponding to the embedded emissions in their goods.
- The price of these certificates will align with the EU ETS allowance price.
Compliance Requirements:
Registration:
- Companies must register in the CBAM Transitional Registry, which facilitates the submission of CBAM reports and communication with EU authorities.
Reporting:
- Quarterly Reporting: During the transitional phase, importers or their indirect customs representatives need to report:
- The quantity of goods imported.
- Embedded emissions (both direct and indirect).
- Any carbon price paid in the country of origin.
Methodology:
- Use of default values published by the EU Commission for emissions calculations is allowed until 31 July 2024. After this, primary data must be used.
- For complex goods, estimates for up to 20% of the total embedded emissions can be used if actual data isn’t available.
Penalties:
- Failure to report or inaccuracies in reporting can lead to penalties ranging from €10 to €50 per tonne of unreported emissions, with considerations for the severity and cooperativeness in rectifying errors.
Documentation and Data Collection:
- Companies need to gather detailed emissions data from their supply chains, which might require new systems or agreements with suppliers to ensure data accuracy and completeness.
How to Comply:
- Identify CBAM Products: Determine which of your products fall under CBAM regulations (like cement, iron & steel, aluminium, fertilizers, electricity, and hydrogen).
- Engage with Suppliers: Start collecting emissions data from suppliers. This involves understanding their production processes and potentially assisting them in data collection if they’re not already doing so.
- Establish Reporting Systems: Develop or adapt IT systems to collect, process, and report emissions data efficiently.
- Prepare for Financial Impact: From 2026, plan for the financial implications of purchasing CBAM certificates. This might involve integrating expected CO2 costs into product pricing or supply chain costs.
- Seek Expertise: Given the complexity, many companies might benefit from consulting with experts in carbon accounting, trade law, or sustainability to navigate compliance effectively.
- Stay Updated: The EU might refine or expand CBAM rules, so continuous monitoring of regulatory updates is crucial.
In summary, compliance with CBAM involves immediate action in terms of data collection and reporting, with a gradual shift towards financial obligations from 2026. Companies should start now to ensure they can meet these requirements efficiently as the deadlines approach.
Connect with us to know how to comply with CBAM reporting requirements. We at Key Sustainability Solutions Pvt Ltd (www.keysustainability.com) provide end to end services on sustainability including CBAM, ESG, LCA, PCF, CDP, GRI, Energy Audit, Water Assessment,
