October 1st 2023: start of transition period.
The European Union, following adoption of the Paris Agreement in 2015 and subsequent publication of the European Green Deal program, has decided to implement a series of measures to meet GHG (Green House Gas) emission reduction targets and enable the energy transition to renewable sources over the next few years. The programme aims to protect the health of citizens, as well as that of the surrounding environment, through a pro-active multi-pronged strategy to achieve 55% emission reduction by 2030 and climate neutrality by 2050.
The CBAM – Carbon Border Adjustment Mechanism, introduced by Reg. EU 2023/956 published on May 16th 2023, is a key element of the EU strategy to reduce carbon emissions in the production of products imported into the EU territory. The Regulation regulates the scope, players involved and requirements for UE operators with a progressive entry into force of the Regulation's provisions and a transition period from October 1st 2023 until December 31st 2025.
The aim is to establish an exchange mechanism of CO2 emission allowances, CBAM certificates, for products imported into the EU that importers will be required to acquire for emissions deriving from production in non-EU territories that exceed European standards. This instrument will make it possible to reduce the risk of relocation of high-carbon emission processing to countries with less restrictive environmental standards than EU countries. It is a system intended to operate in parallel with the EU Emission Trading System (EU ETS), currently in force for emissions from processing carried out in the territory of the European Union.
Products whose imports are covered by the Carbon Border Adjustment Mechanism have been listed in Annex I of the above-mentioned EU Regulation according to the customs nomenclature code associated with the product itself. It concerns commodities whose production involves carbon-intensive processes and covers cement, aluminium, fertiliser, hydrogen, power generation, iron and steel and related other processes consisting of the above materials. The list of products involved could change; indeed, the EU Commission could include other types of commodities by the end of the transition period.
As of October 1st 2023, all imports into the EU of these products will be subject to the provisions of the CBAM mechanism, which, for the transition period, requires the submission of a CBAM report on a quarterly basis. Importers or indirect customs representatives, upon agreement with the importer, must submit the CBAM report no later than one month after the end of the quarter in which the import occurred; the first reporting requirement is envisaged for January 31st 2024.
Importers will have to report, through the CBAM report of the transition period, data on the embedded emissions of products imported and reported by suppliers using an electronic form provided by the EU Commission. EU importers will be able to send this form to the suppliers of the listed products so that they can receive the necessary information on the emissions involved in production.
The data required for the CBAM report is as follows:
Provision is made to use values predefined by the EU Commission if there is no other available data.
With regard to CBAM requirements, exemptions are provided for certain low value shipments and for products originating in a short list of countries including Iceland, Liechtenstein, Norway and Switzerland.
Entry into force of the requirement to purchase CBAM certificates is envisaged to start in January 2026, in order to enable EU importers to build a certified supply chain and to have the required information to be able to manage the requirements imposed by the CBAM mechanism which, compared to the transition period, will undergo significant changes, especially with regard to the emission calculation methods.
An authorised CBAM Declarant will also be established as the only party which, as of the end of the transition period, will be able to make imports of products subject to the provisions of the CBAM Regulation.
The CBAM Declarant will be required to submit an annual CBAM declaration by May 31st of each year regarding the quantities imported, the CBAM certificates to be returned, and the accredited verifier's report. The first due date is envisaged for 2027 for the previous year's imports.
The CBAM mechanism also provides for a continuous exchange of information between EU Customs Offices, National Authorities and the EU Commission in order to be able to monitor imports into the EU territory, compliance with reporting requirements and have constantly updated information in order to be able to implement any corrective measures. Indeed, there is also the possibility for National Authorities to impose sanctions on entities that fail to comply with the provisions of the Regulation, also during the transition period.
The EU Commission is offering operators the opportunity to participate in six in-depth webinars by area of interest scheduled until October 5th 2023. Registration can take place on the EU Commission's Carbon Border Adjustment Mechanism page: https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en, where two guidelines, one for importers and one for producers outside the European Union, have been made available in addition to the regulatory texts.
The Customs Consultancy team is available for further information.
