Today is Wednesday, 24 July 2024.
The Carbon Border Adjustment Mechanism (CBAM) is being introduced gradually in the European Union (EU). Its transitional period started last October 2023 and goes until it becomes definitive, after 31 December 2025.
There are milestones in between, one of which ends one week from now.
As you may recall, with CBAM the EU intends to reduce the risk of production relocating to countries with less ambitious decarbonisation policies, also called “carbon leakage”. Additionally, via this surcharge, it “promotes” the decarbonization of producers abroad.
The issue is that the EU already achieved significant decarbonization results through the European Union Emission trading system (EU ETS), already in place since 2005. And posed to a new phase, the EU ETS 2.
This ETS is basically a market mechanism that allows European countries, companies or manufacturing plants which emit greenhouse gases (GHG) into the atmosphere, to buy and sell these emissions (as permits or allowances) amongst themselves. In other words, a “cap and trade” system to reduce emissions via a carbon market, with the cap being centrally defined per sector and reduced along these almost 20 years.
CBAM will apply the same carbon price to imported goods as would be paid by installations operating in the EU. And within the same sectors of the EU ETS: iron and steel, cement, fertilisers, aluminium, hydrogen and electricity.
During the transitional period mentioned above, importers of CBAM goods are only reporting GHG embedded in their imports emissions, without paying any financial payments or adjustments.
There is also flexibility when it comes to the values used to calculate embedded emissions during the transitional phase.
Until the end of 2024, companies have the choice of reporting in three ways:
(a) full reporting according to the new methodology (EU method);
(b) reporting based on an equivalent method (three options) and
(c) reporting based on default reference values (only until July 2024)
This last option is the one that ends next week.
Specifically according to the Implementing Regulation (EU) 2023/1773 “… until 31 July 2024, reporting declarants that would not be able to obtain all the information from third country operators to determine the actual embedded emissions of the imported goods in accordance with the methodology set in Annex III to this Regulation should be able to use and refer to an alternative method for determining the direct embedded emissions.”
Last December we posted these default reference values.
The Implementing Regulation (EU) 2023/1773 in full, including Annex III, can be seen here at Official Journal of the European Union, in several languages.
Click at the image below for more details.
You might be also interested in this study by the World Bank - the Relative CBAM Exposure Index - designed to identify countries with a high exposure to the CBAM, using carbon emissions intensity and exports to the EU.
