The Carbon Border Adjustment Mechanism (CBAM) is a new instrument introduced by the European Commission as part of the 'Fit for 55' package. CBAM supplements the EU Emissions Trading System (ETS) and will enter into force in its transitional phase as of 1 October 2023.
To help stakeholders prepare for the new reporting obligations as of 1 October 2023, the European Commission has published various informative documents and modules on the website of the European Commission.
Why CBAM?
CBAM is designed to put a fair price on carbon emitted during the production of carbon-intensive goods that are entering the EU. Secondly, CBAM aims to encourage cleaner industrial production in non-EU countries and to mitigate the risk of so-called ‘carbon leakage'. Carbon leakage occurs when companies based in the EU move carbon-intensive production abroad. By confirming that a price has been paid for the embedded carbon emissions generated in the production of certain goods imported into the EU, CBAM will ensure the carbon price of imports is equivalent to the carbon price of domestic production, and that the EU's climate objectives are not undermined.
How does CBAM work?
CBAM initially applies to imports of certain goods and selected precursors whose production is carbon intensive and at the most significant risk of carbon leakage: cement, iron and steel, aluminium, fertilisers, electricity and hydrogen. The list of CBAM goods is included in EU regulation during the transitional period.
As of October 1st, every importer of CBAM goods with a value of more than €150,- per shipment will need to report the embedded emissions of goods imported into the EU on a quarterly basis. This report is submitted to the European Commission through the CBAM Transitional Registry.
Transitional phase
From October 2023 to January 2026, CBAM is in its transitional phase. In this phase, importers of goods in the scope of CBAM will only have to report greenhouse gas emissions (GHG) embedded in their imports (direct and indirect emissions).
CBAM as of 2026
Once the permanent system enters into force on 1 January 2026, importers will annually need to declare the quantity of goods imported into the EU of the preceding year and their embedded GHG. Additionally, they will need to surrender the corresponding number of CBAM certificates to price in the embedded carbon emissions generated in the production of certain goods imported into the EU.