The EU Carbon Border Adjustment Mechanism (CBAM)

Deloitte Malta Tax Alert

30 January 2023

On 13 December 2022, the Council of the EU and the European Parliament reached a provisional agreement on CBAM. The agreement needs to be confirmed and formally adopted by both institutions before it becomes final. Some aspects of CBAM, such as the length of the transitional period and its full phase-in, have been agreed upon on 17 December 2022 in the parallel legislative process on the reform of the EU Emissions Trading System (ETS).

While the text of the CBAM legislation is still being finalised, several important details of the provisional agreement have been released.

Summary of key details

  • The CBAM transitional period is to begin on 1 October 2023.
  • The full go-live of CBAM is now planned in 2026. Over a period of 8 years, CBAM will be phased-in in parallel with the gradual phase out free allowances granted under the EU ETS.
  • The initial product scope of CBAM will include the groups of products proposed by the European Commission (namely: iron, steel, cement, fertilisers, aluminium, and electricity), as well as hydrogen, some precursors and a limited number of downstream products. Indirect emissions will, under certain conditions, also be covered.
  • Other products previously proposed for inclusion by the European Parliament, such as chemicals and polymers, are currently not included in the product scope. The expansion of CBAM to cover such products is to be assessed by the European Commission by the end of the transitional period.
  • The governance of CBAM will be centralised, with the European Commission directing most of the tasks pertaining to its implementation.

Impact on business

The commencement of the CBAM transitional period on 1 October 2023 means that affected businesses need to act fast to be prepared. In terms of the impact of CBAM across industries, certain sectors such as chemicals and plastics will not (at least for the time being) be covered by CBAM. On the other hand, following this provisional agreement, the compliance requirements of CBAM have increased, given the inclusion of indirect emissions and the resulting complexity of their calculation and reporting. Businesses are advised to begin their organisational preparations as soon as feasible, and to assign roles and responsibilities within their organisation for the emissions data collection and managing compliance with CBAM.

How Deloitte can help

Deloitte’s Global Trade Advisory specialists are part of a global network of professionals who provide specialised assistance in global trade, customs and CBAM matters. Our professionals can support in carrying out a CBAM ‘quickscan’ to assess the potential impact of CBAM on your business, and to create a tailor-made action plan to ensure your business is ready for both the CBAM transitional period and the CBAM ‘go-live’.

If you have questions about CBAM and its impact on your business, including our capabilities for assistance in this regard, please do not hesitate to contact us.

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