The EU CBAM

The EU's Carbon Border Adjustment Mechanism (CBAM) is a new carbon-pricing system targeting imports of carbon-intensive goods. Its primary goals are to prevent carbon leakage and create a level playing field between EU producers, who face carbon costs under the EU Emissions Trading System (ETS), and their non-EU counterparts. CBAM is being implemented in two main phases: a transitional period (2023-2025) focused on reporting obligations, and a definitive phase (from 2026) that introduces financial adjustments through the purchase of CBAM certificates.

Key Actors:

• Importers (CBAM Declarants):
  • Primary responsibility for CBAM compliance.
  • Must report emissions during the transitional period.
  • From 2026, must purchase CBAM certificates.
• Indirect Customs Representatives:
  • EU-established agents acting on behalf of importers, especially those outside the EU.
  • Can assume CBAM obligations.
• National Competent Authorities (NCAs):
  • Administer CBAM at the national level.
  • Register declarants, verify compliance, and impose penalties.
• European Commission:
  • Operates the central CBAM Registry.
  • Sets certificate prices based on EU ETS allowances.
  • Monitors compliance and detects circumvention.
• Non-EU Manufacturers ("Operators"):
  • Provide emissions data to importers.
• Accredited Verifiers:
  • Validate emissions data for CBAM goods from 2026.

Importer Obligations:

Importers are the central figures in the CBAM system. They are responsible for ensuring that the carbon emissions embedded in their imported goods are accurately reported and, from 2026 onward, that the corresponding carbon costs are paid. During the transitional phase, importers function as "reporting declarants," submitting quarterly emissions reports. In the definitive phase, they must become Authorized CBAM Declarants, requiring formal registration and approval to purchase CBAM certificates.

• Registration and Obtain Authorization:
  • Register in the CBAM Transitional Registry during the transition.
  • Apply for "Authorized CBAM Declarant" status by 2025.
  • Obtain an Economic Operator Registration and Identification (EORI) number.
• Collect and Report Emissions Data (Transitional Phase):
  • Monitor and report embedded greenhouse gas emissions quarterly.
  • Include quantity of imported goods, embedded emissions (direct and indirect), origin and production details, and any carbon price paid abroad.
  • Submit reports through the CBAM Transitional Registry.
  • Maintain supporting documentation.
  • Obtain emissions data from non-EU manufacturers.
  • Use default values only when actual values are unobtainable.
• Purchase CBAM Certificates (Definitive Phase):
  • Purchase certificates corresponding to embedded emissions.
  • Certificates are bought from a centralized platform, with prices tied to EU ETS allowances.
  • Ensure holding at least 80% of required certificates by each quarter's end.
• Annual Emissions Declaration and Surrender of Certificates:
  • Submit an annual CBAM declaration by May 31st.
  • Include total imported quantity, total verified embedded emissions, and total number of CBAM certificates.
  • Surrender certificates by May 31st.
  • Claim deductions for carbon prices paid abroad.
  • Resell up to 1/3 of unused certificates by June 30th.
• Verification and Record-Keeping:
  • Use accredited verifiers to validate emissions data from 2026.
  • Maintain records for at least four years.

Impacts on Importers:

CBAM introduces both administrative and financial costs for importers. During the transitional phase, the costs are mainly associated with setting up compliance systems and gathering data. In the definitive phase, importers will bear the direct financial burden of purchasing CBAM certificates. Documentation requirements are extensive, and importers must maintain detailed records to demonstrate compliance. Penalties for non-compliance are significant, including fines and potential loss of import privileges.

• Costs:
  • Administrative and direct financial costs.
  • Purchase of CBAM certificates.
  • Verification fees.
• Documentation:
  • Maintain detailed records of imported goods, emissions, and certificate transactions.
• Penalties:
  • Fines for failure to report (transitional phase).
  • Fines for failure to surrender sufficient certificates (definitive phase).
  • Failure to surrender sufficient certificates incurs a 100 euro per ton of CO2 fine, and the importer must still purchase the missing certificates.
  • Potential loss of import privileges.