Update: Newly proposed amendments to the CBAM

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Update: Newly proposed amendments to the CBAM

The EP Committee has proposed impactful changes to the CBAM

Following the approval of the EU Council on CBAM in March, the responsible EU Parliament Committee has now formally suggested impactful changes to the CBAM proposal. The most notable suggestions include a scope expansion to include polymers and organic chemicals, to include both direct and indirect embedded emissions of the products, and to shorten the implementation timelines. More information in our update below.

Update on the Carbon Border Adjustment Mechanism (‘CBAM’)

Following our update on 15 March 2022, on 17 May 2022, the Committee on the Environment, Public Health and Food Safety (‘ENVI’), adopted its Report on the CBAM, in which it suggests a number of impactful changes to the Commission proposal.

Summary of suggested changes:

  • Expansion of product scope: The CBAM scope should be expanded to also include hydrogen, polymers (chapter 39 of the Combined Nomenclature) and organic chemicals (chapter 29 of the Combined Nomenclature) in addition to the existing product scope.
  • Broader emission scope: In addition to direct emissions, the calculation of embedded emissions in (in-scope) products should also include “indirect emissions” (being emissions of the electricity used during the production process of the in-scope products).
  • Faster implementation: The transitional period is to end on 1 January 2025 instead of 2026; followed by full CBAM implementation by 2030 instead of 2035, in parallel with the full phase-out of free allowances under EU ETS in CBAM sectors.
  • Single CBAM authority: There should be a single EU CBAM authority responsible for the implementation of the CBAM instead of local authorities in each EU Member State.
  • Financial assistance to least developed countries: CBAM revenues should go exclusively to the EU budget, and should be used for the financial support of least developed countries’ efforts towards the decarbonisation of their manufacturing industries.

Next steps for the CBAM

The ENVI-report with the suggestions is expected to be put to a vote in the EU Parliament on 6-9 June 2022. It is there the official position of the EU Parliament on the CBAM will be determined. The CBAM proposal with all suggested amendments will then be sent back to the Council of the EU. If the Council agrees, the legal act will be adopted and if it disagrees, they will have to work together with the EU Parliament to reach a compromise in the text of the CBAM legislation.

What to do

While the official position of the EU Parliament will become clear only after the voting process, the ENVI Report is likely to shape the outcome. If the ENVI suggestions have a significant impact on businesses and they should thus already be taken into account in the preparation for the CBAM.

Most obviously, the suggested product scope expansion will mean businesses importing products previously not in scope of the CBAM proposal will now also have to prepare for its implementation.


Then, the inclusion of indirect emissions within the scope of CBAM is likely to significantly increase (and complicate) the compliance burden for businesses affected by CBAM. And finally (to top it all off), the shorter implementation period will mean all businesses directly or indirectly affected by CBAM will have less time to adjust to the CBAM requirements.

Taking these developments into account we want to reinforce our previous recommendations: We recommend all EU importers of products (including the potentially to be) covered by the CBAM to start with their preparations for the reporting obligations that will take effect in the transitional period starting from 1 January 2023. In this respect consider carrying out a review of your supply chain to determine the potential impact of the CBAM on your business, and start assessing the amount of embedded emissions in your imported products, including (where possible) the indirect emissions created during the production process of these products.
 

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 an initial CBAM quick scan and broader supply chain reviews in the light of the CBAM implementation, transitional period and compliance requirements.

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
 

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