EU Carbon Border Adjustment Mechanism (CBAM)

Deloitte’s CBAM Compliance Manager

CBAM: the legislative process

On 10 May 2023, the EU co-legislators signed the CBAM Regulation, which officially entered into force the day after its publication in the EU Official Journal on 16 May 2023. On 17 August 2023 the EU Commission adopted its implementing regulation laying down reporting obligations for the purposes of CBAM during the transitional period.

The transitional period, during which importers are required to comply with a quarterly reporting requirement of their imported CBAM goods and embedded greenhouse gas emissions, started on 1 October 2023.

The legislative timeline of the CBAM can be consulted immediately below.

CBAM in a nutshell

The general principles of CBAM are as follows :

• It aims to prevent ‘carbon leakage’ by subjecting the import of certain groups of products from 3rd (non-EU and non-EFTA) countries to a carbon levy linked to the carbon price payable under the EU Emissions Trading System (ETS) when the same goods are produced within the EU;
  
• Currently the following goods are in scope of the CBAM: iron and steel, cement, fertilisers, aluminium, electricity, and hydrogen. Scope will additionally include certain precursors, and a limited number of downstream products (however currently not chemicals and polymers as was previously proposed by the EU Parliament);
• Further scope extensions to include additional products (such as chemicals and polymers) are to be determined by 2026, and the full inclusion of all EU ETS products is planned by 2030;
• During the transitional period (as of 1 October 2023), importers of CBAM goods are required to submit quarterly reports with the following content:
  • Quantities of CBAM goods imported during the quarter, specified per country of origin per production site where the goods are produced;
  • The embedded direct (and - if applicable -, indirect) greenhouse gas emissions thereof; and
  • (If applicable) the carbon price due in the country of origin.

In case of challenges with obtaining emissions data during the transitional period, the reporting declarant has the following alternative options for reporting emissions values:

• Until 31 December 2024, the reporting declarant can use the following (alternative) monitoring and reporting methods, if they lead to similar coverage and accuracy of emissions data compared to the CBAM calculation methods:
  • a carbon pricing scheme where the production site is located;
  • a compulsory emission monitoring scheme where the production site is located; or
  • an emission monitoring scheme at the production site which can include verification by an accredited verifier.
     
• Until 31 July 2024, the reporting declarant can use default values published by the EU Commission for the transitional period, with a short explanation of why actual data is not being used.

• During the entire transitional period, the reporting declarant can use estimations made available by the operators of the production sites for up to 20% of the total embedded emissions of complex CBAM goods.

• The full scope of the CBAM regulation will enter into force on 1 January 2026. From that moment on importers will need to:
  • Obtain an authorization in order to import CBAM goods (‘authorized declarant’);
  • Declare on a yearly basis the quantity of CBAM goods imported into the EU in the preceding year and their embedded greenhouse gas emissions; and
  • Surrender CBAM certificates to cover the declared emissions.

Compliance with the CBAM: what steps to take?

The transitional period of the CBAM began on 1 October 2023. This requires EU importers to start reporting emissions embedded in the CBAM products they import.

Below we outline the key actions business need to take during the transitional period of the CBAM:

• Carry out the initial impact assessment: which of your products will be covered by the CBAM? Where do you source them from (i.e. origin)? What is the volume of your imports of these products?
• Set up the process to collect data on productions sites and underlying emissions: who in the supply chain holds this information? Who are your major suppliers of CBAM goods?
• Set up the reporting process in the EU: which business function within your organization will be responsible for the compliance requirements of the CBAM?
• Gather actual import data on quantities of CBAM goods imported for the quarter concerned – this may require alignment with your customs brokers.
• Link the import volumes with the underlying production sites and emissions data collected from your suppliers (or apply default values), prepare and submit the CBAM report (first report should be submitted with the CBAM Transitional Registry by 31 January 2024).

CBAM webcast

On October 26, 2022 we hosted a webcast on the topic of CBAM. We focused on the upcoming changes and impact on the supply chain and how we can support businesses in preparations, operational compliance requirements and related sustainability goals.

How we can help

Deloitte’s Global Trade Advisory specialists are part of a global network of professionals who provide specialised assistance in global trade and customs matters. Our professionals can support in carrying out an initial CBAM impact assessment and broader supply chain reviews in the light of the CBAM implementation, transitional period and compliance requirements. We can assist businesses with:

• Carrying out an impact assessment of CBAM on their product portfolio;
• Performing a high-level check on availability of emissions data and preliminary (financial) impact assessment of purchasing CBAM certificates based on the product scope, emissions data, and current EU ETS pricing;
• Reviewing the origin and sourcing patterns of in-scope products to determine possibilities for exemptions or reductions under CBAM; and
• Reviewing organizational preparedness and advising on assigning roles and responsibilities.

To assist companies during the transitional period, Deloitte is developing the CBAM Compliance Manager; a digital solution that enables companies to automate their CBAM Reporting obligations. This allows businesses to prepare and manage quarterly CBAM reports as follows:

• The solution can be used to submit requests for CBAM information (production site and emissions data) to suppliers;
• Emissions are automatically allocated based on supplier information - either via a fully automatic system-to-system interface or via a manual upload of emissions data;
• In the event that emissions data is not available, the solution enables decision making based on default emissions data as fallback methods.
  

If you have questions about the CBAM and its impact on your business including our capabilities for assistance in this regard, do not hesitate to contact us.