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If you import goods into the EU (and later UK), you will be required to undertake the significant administrative burden of having to calculate and report the carbon production price of imported goods covered by CBAM. This means purchasing CBAM certificates, calculated per ton of CO2 emitted and based on the weekly average auction price of EU Emissions Trading System (ETS) allowances. You will also be required to maintain documentation declaring the quantity of imported goods and their embedded emissions for the previous year. A business can only claim a deduction if it can prove that a carbon price was already paid during production of the imported goods. Additionally, to make payments, EU importers will be required to surrender CBAM certificates corresponding to the amount of greenhouse gas emissions embedded in the products.
In short, more time, more money and more complexity around imported goods. If you're an EU business looking to import products, such as cement, iron and steel, aluminum, fertilizers, hydrogen, or even electricity, you are required to implement the new recording, reporting and payment mechanisms. The complexity of these mechanisms is based on the frequency of your imports, the number of different EU countries into which goods are being imported, and the sources of the imported materials.
The Carbon Border Adjustment Mechanism aims to put a fair price on the carbon emitted during the production of carbon-intensive goods that enter the territory of a country or trade bloc. It encourages cleaner industrial output in the countries where the goods are sourced, helping the importing country/trade bloc meet its climate objectives. The mechanism is designed to be compatible with WTO rules.
The UK recently completed an initial 12-week consultation exercise ending June 22, 2023. It included 10 sectors that contribute most to carbon leakage, such as cement, chemicals, glass, iron and steel, non-ferrous metals, non-metallic minerals, paper and pulp, refining, fertilizer, and power generation, with the possibility of extending the measures to non-industrial sectors, such as agriculture or timber.
The CBAM regulation officially entered into force in the EU on May 17, 2023. The mechanism entered its first (transitional) phase on October 1, 2023, with the first reporting period for importers ending January 31, 2024. The system has been designed to mirror the EU’s Emissions Trading System (ETS). The Implementing Act is expected to be officially published during the summer.
The price paid for embedded carbon emissions generated in the production of certain imported goods. The intention is that the carbon price of an import is equivalent to that of the carbon price of domestic output of the goods.
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EU importers should proactively obtain authorization as CBAM declarants can secure CBAM certificates, disclosing the emission value of their imports. In addition, they must pay for carbon-priced imports through the new financial adjustment mechanism; if uncertain, businesses within the EU should consider having their declaration data validated by an accredited entity.
Additional products, like chemicals and polymers, are likely to be included based on consultation outcomes.
Investigations by authorities can often be addressed by providing the requisite documentation. Strong record keeping supported by scrupulous supplier-solicitation processes can help to quickly resolve authorities’ concerns. Talking to an expert on best practice for these mechanisms may be helpful.
Suppliers that are not responsive to requests to provide certificates and/or supporting proof-of-origin documentation should be flagged immediately for concerns as potentially non-compliant.
Importers must meticulously identify all suppliers from which they source affected imports, establish a uniform procedure for soliciting information from these suppliers, and implement a robust auditing mechanism to guarantee comprehensive coverage of all imports during any given reporting period.
Importers of carbon-intensive goods into the EU must meet new reporting requirements, such as purchasing CBAM certificates and declaring embedded emissions from goods imported beginning October 1, 2023.
The new EU requirements coincide with the introduction of CBAM, initially targeting carbon-intensive products like cement, iron, steel, aluminum, fertilizers, electricity, and hydrogen, with a comparable scheme expected to affect UK importers around early 2024.
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Failure to meet essential obligations post-transition could result in penalties or additional compliance fees for EU importers.
Potential penalties or fees
Limited window for implementation
New requirements
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In addition to CBAM compliance, Livingston offers a thorough assessment of your EU/UK imports, uncovering potential compliance discrepancies, and identify cost-saving opportunities by streamlining import processes, leveraging preferential duty measures, and utilizing duty waiver programs.
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