At a Glance
The Carbon Border Adjustment Mechanism (CBAM) is a measure to ensure that imported goods pay a price for their carbon emissions that is comparable to the price paid by EU domestic producers under the EU Emissions Trading System (EU ETS). The CBAM Regulation entered into force on 17 May 2023. Its transitional period started 1 October 2023 and will end on 31 December 2025. The definitive period will start on 1 January 2026.
In late October 2024, the European Commission published two draft implementing regulations (IRs), respectively, on the authorization of CBAM declarants and CBAM Registry, and opened a four-week consultation where interested parties can submit their comments to the Commission until late November 2024.
CBAM in a Nutshell
In essence, CBAM is a measure to ensure that imported goods pay a price for their carbon emissions that is comparable to the price paid by EU producers under the EU ETS. The CBAM imposes a carbon price on imports on six categories of goods: cement, fertilizers, iron and steel, aluminium, hydrogen and electricity.
During the transitional period (from 1 October 2023 to 31 December 2025), reporting declarants (e.g., EU importers) must comply with reporting requirements, but do not need to pay a price for those emissions yet. In practice, declarants must submit quarterly CBAM reports that include: (i) the total quantity of imported goods; (ii) the direct and indirect emissions embedded in the imported goods; and (iii) any carbon price effectively paid in the country of origin for the embedded emissions.
When the definitive period starts from 1 January 2026, declarants must be authorized to import CBAM goods and will be required to purchase CBAM certificates corresponding to the embedded emissions of imported CBAM goods.
Authorization of CBAM Declarants
On 30 October 2024, the European Commission published the draft implementing act on authorization of CBAM declarants and opened a four-week public consultation where interested parties can submit their response online by 27 November 2024.
In order for EU importers to be able to import CBAM goods during the definitive period, they must apply for an authorisation to become CBAM declarants. If EU importers are not authorized CBAM declarants, they will not be able to import CBAM goods. In essence, the draft IR provides the rules for the submission of the application to become an authorized CBAM declarant and sets out the criteria and procedures for granting such authorization by national competent authorities.
CBAM Registry
On 31 October 2024, the European Commission published the draft implementing regulation on the CBAM Registry and opened a four-week public consultation where interested parties can submit their response online by 28 November 2024.
Article 14 of the CBAM Regulation provides that the Commission must establish a CBAM Registry in the form of a standardized electronic database. In essence, the draft IR provides rules on establishing the CBAM Registry as the electronic database for CBAM certificates management, CBAM declarations, applications to become authorized CBAM declarants and a registration of operators in third countries.
Looking Ahead
After reviewing feedback from stakeholders, the Commission will discuss the draft IRs with the CBAM Committee, which consists of one representative from each EU member state and is chaired by the Commission. The CBAM Committee provides an opinion in the form of a vote. The Commission will be able to adopt the proposal as it is unless a qualified majority of the member states (55% of EU countries representing at least 65% of the total EU population) vote against it.
The draft IRs should apply from 31 December 2024. This means that the Commission would aim to finalize the draft IRs soon, possibly as early as the first week of December.
The CBAM Regulation empowers the Commission to adopt several implementing regulations and delegated regulations on specific issues. The Commission is expected to publish several draft implementing regulations and delegated regulations in 2025 (e.g., conditions for CBAM application to goods brought to the Exclusive Economic Zone, conditions for sale and re-purchase of CBAM certificates, calculation of emissions and CBAM declarations, accreditation of verifiers and verification principles, conditions for accreditation and verifiers, carbon price and price of CBAM certificates, adjustment for free allocation).
Please do not hesitate to get in touch with Cassidy Levy Kent’s international trade team in Brussels, or your usual contact in any of Cassidy Levy Kent’s offices, with any questions.