EU Carbon Border Adjustment Mechanism (CBAM)

CBAM: the legislative process

The proposal for the CBAM was formally submitted by the European Commission (Commission) on 14 July 2021. Subsequently, on 15 March 2022, the Council adopted its general approach to the CBAM, and on 22 June 2022, the European Parliament adopted its own position on the CBAM.

While the amendments proposed by the Council are rather limited in scope, the European Parliament’s position is indicative of a more expansive revision of the Commission’s proposal, as was detailed in our earlier alert.

In order to agree on the final text of the CBAM regulation, the Council and the European Parliament are currently negotiating to align their diverging positions. The expectation is that this process will be finalized shortly.

The legislative timeline of the CBAM can be consulted immediately below.

CBAM in a nutshell

The general principles of CBAM are as follows :

• It aims to prevent ‘carbon leakage’ by subjecting the import of certain groups of products from 3rd (non-EU and non-EFTA) countries to a carbon levy linked to the carbon price payable under the EU Emissions Trading System (ETS) when the same goods are produced within the EU.
• Currently the following goods have been proposed to be in scope of the CBAM: iron and steel, cement, fertilisers, aluminium, electricity, and hydrogen. Scope will additionally include certain precursors, and a limited number of downstream products (however currently not chemicals and polymers as was previously proposed by the EU Parliament);
• Further scope extensions to include additional products (such as chemicals and polymers) are to be determined by 2026, and the full inclusion of all EU ETS products is planned by 2030;
• The transitional period for the CBAM is expected to start in October 2023, during which EU importers must submit quarterly CBAM-reports, stating their imports of the CBAM products, as well as the emissions ‘embedded’ in their imported products. Such emissions are proposed to include direct and indirect emissions occurring during the production process of the imported goods.
• The transitional period is proposed to end in January 2027, after which the carbon levy under the CBAM must be paid. In order to pay the carbon levy under the CBAM, EU importers must purchase CBAM certificates covering the emissions ‘embedded’ in the products they import and submit annual CBAM declarations.
• Importing CBAM products, purchasing CBAM certificates and submitting CBAM declarations will require a special authorisation (the ‘Authorised (CBAM) Declarant’) issued to EU importers or representatives acting on behalf of one or more importers by the competent CBAM authority.

Preparing for the CBAM: what steps to take?

While some of the finer details are still to be agreed on, there is little doubt that the CBAM will eventually be introduced in the EU. Based on the current positions of the legislators, the transitional period of the CBAM is scheduled to enter into force on 1 October 2023. That would require EU importers to start reporting emissions embedded in the CBAM products they import.

Below we outline the key actions business can take to prepare for the transitional period of the CBAM:

1. Carry out the initial impact assessment: which of your products will be covered by the CBAM? Where do you source them from (i.e. origin)? What is the volume of your imports of these products?
2. Set up the process to collect data on the embedded emissions: who in the supply chain holds this information? Who will reach out to the suppliers?
3. Set up the reporting process in the EU: determine the business function within your organization responsible for the compliance requirements of the CBAM?

How we can help

Deloitte’s Global Trade Advisory specialists are part of a global network of professionals who provide specialised assistance in global trade matters, including on the topic of CBAM. Our professionals can support in carrying out supply chain reviews in the light of the CBAM implementation and transitional period.

For more information about the impact the CBAM can have on your business and our capabilities in this regard, please contact one of our experts.