THE CARBON BORDER ADJUSTMENT MECHANISM (CBAM)

A KEY TOOL IN THE EU'S CLIMATE ACTION

ENSURING FAIR COMPETITION TO ADDRESS THE REDUCTION OF GREENHOUSE GAS EMISSIONS

OBJECTIVE OF THE CBAM

The Green Deal of the European Union represents a comprehensive and ambitious strategy to achieve a sustainable and climate-neutral future. To achieve this goal a certificate-based system (EU Emissions Trading System) was setup to encourage CO2 neutral production. To avoid carbon leakage, where businesses relocate production outside of the EU in regions with lower climate ambitions, the EU now introduces the Carbon Border Adjustment Mechanism (CBAM). This mechanism aims to gradually phase in equivalent carbon pricing for imports and domestic products ensuring fair competition.

SECTORS

Initially, the CBAM will focus on sectors at risk of carbon leakage, such as:

Cement
Iron and Steel
Aluminium
Fertilisers
Hydrogen
Electricity

NON-PREFERENTIAL ORIGIN

CBAM applies to all third countries except those in the European Free Trade Association (EFTA), including:

Iceland
Liechtenstein
Norway
Switzerland

Additionallly, goods originating from the following locations are also out of scope:

Büsingen
Helgoland
Livigno
Ceuta
Melilla

THE AUTHORISED CBAM DECLARANT

Goods under the scope of CBAM have to be imported by a registered CBAM declarant. This declarant can be:

a company that is established in an EU member state or
the importer can also appoint an indirect customs representative to report the greenhouse gas emissions embedded in his imported goods.

Companies not established in the EU need to be represented. At ALS, we can support you with indirect customs representation. Contact us now to find out more!

THE REPORTING DECLARANT

The reporting declarant can be defined as any of the following:

Importer

Someone who submits customs declarations for releasing goods
Declaration made on their behalf and in their name

Authorised Person

Holds authorisation to submit customs declarations as per Article 182(1) of Regulation (EU) No. 952/2013.
Declares importation of goods

Indirect Customs Representative

Submits customs declarations on behalf of someone else
As per Article 18 of Regulation (EU) No. 952/2013
Applies when the importer is outside of the EU or consented to reporting as per Article 32 of Regulation (EU) 2023/956.

CBAM TRANSITIONAL REGISTRY

A standardised and secure electronic database, containing common data elements for reporting during the transitional period. It enables communication, checks and information exchange between the Commission, the competent authorities, customs authorities, and reporting declarants.

SUBMISSION AND MODIFICATION/CORRECTION OF CBAM REPORTS

From 1 October 2023 to 31 December 2025, these reports must be submitted quarterly to the CBAM Transitional Registry within a month after the quarter ends. When submitting, the reporting declarant must specify if the report is being submitted by an importer directly or by an indirect customs representative on behalf of an importer.

If an indirect customs representative chooses not to fulfil the reporting obligations, they must notify the importer about their responsibilities under this regulation. All CBAM reports should contain the information specified in Annex I of Implementing Regulation. Once a CBAM report is submitted, it will be assigned a unique Report ID.

Table indicating CBAM reporting period deadlines

A reporting declarant may modify a submitted CBAM report until two months after the end of the relevant reporting quarter. Exceptionally, the first two reports can be modified until the third report's submission deadline.

If a reporting declarant has a valid reason, the competent authority may allow them to resubmit or correct a report after the usual deadline, but within a year of the quarter's end. Any corrections should be completed within a month after the authority's approval. If the competent authority denies the request to modify, they must provide a reason and inform the declarant about their appeal rights. Reports under dispute cannot be changed but can be replaced based on the dispute's outcome.

HOW DOES CBAM OPERATE

THE PROCESS

CERTIFICATION

Obtain CBAM certificates from a central platform based on a weekly average auction price.

DECLARE

Declare the imported quantity of goods and the embedded emissions associated.

7 STEP CBAM PROCESS

BECOME AN AUTHORISED CBAM DECLARANT

The Declarant must be: Established in a Member State or Indirect Customs Rep. appointed by importer

IMPORT GOODS INTO EU

Once authorised, the CBAM declarant can import goods into the EU.

CALCULATE EMISSIONS ASSOCIATED WITH IMPORTS

The declarant must calculate the GHG emissions associated with the production of the imported goods.

PURCHASE CBAM EMISSION CERTIFICATES

The declarant buys CBAM certificates from the Commission, with the price linked to the EU's ETS.

SURRENDER CBAM CERTIFICATES

The declarant surrenders the purchased CBAM certificates to cover the declared emissions.

REPORT TO RELEVANT AUTHORITIES

The declarant reports the quantity of imported goods and associated emissions to the relevant authorities

VERIFICATION OF COMPLIANCE BY AUTHORITIES

The authorities verify the reported information and compliance with the CBAM regulations.

IMPLEMENTATION AND TRANSITIONAL PERIOD

From 1st October 2023, importers are required to report quarterly on their imports of CBAM goods from third countries. This reporting obligation includes information such as:

The quantity
The CN-code
The embedded emissions
Country of origin
The customs declaration and;
The customs procedure.

This transitional period will end on 1 January 2026. Then the actual CBAM certificates will apply.

Transitional Phase table of CBAM — Timeline derived from European Commission

PENALTY APPLICATION

DEADLINE: 31ST MAY EACH YEAR

AUTHORISED CBAM DECLARANT

If an authorised CBAM declarant does not surrender the necessary amount of CBAM certificates by May 31st each year, they are liable to pay a penalty.

According to Article 16(3) of Directive 2003/87/EC, the penalty amount is identical to the excess emissions penalty.
Additionally, the penalty is also increased according to Article 16(4) of the same Directive.

This penalty applies for each CBAM certificate not surrendered.

UNAUTHORISED CBAM DECLARANT

For those other than an authorised CBAM declarant, who introduce goods into EU customs territory without complying with the CBAM regulations, are also liable for a penalty 3-5 times the penalty defined for an authorised CBAM declarant.

This penalty depends on

Duration
Gravity
Scope
International Nature
Repetition of non-compliance
Level of cooperation with the competent authority

This penalty applies for each CBAM certificate not surrendered.

PENALTY PAYMENT

Regardless of paying for a penalty, this does not exempt the authorised CBAM declarant from the obligation to surrender the required number of CBAM certificates for a given year.

FIND OUT MORE

To find out more information about the potential penalties imposed, click here - otherwise, contact our experts at ALS for further support.

READY TO TAKE ACTION ON CLIMATE CHANGE?

CONTACT US

Join us in creating a greener and more sustainable future. Contact the ALS Group today to learn more about the CBAM, its implications for your business, and how we can support you in complying with this crucial mechanism.

Together, we can make a real difference in the fight against climate change. Act now, and let's shape a better tomorrow!

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AUTHORISED CBAM DECLARANT

UNAUTHORISED CBAM DECLARANT

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