Carbon Border Adjustment Mechanism Reporting for EU Importers

The buzz around governance is growing louder. In recent months, local authority chief financial officers have issued a series of Section 114 notices, halting all non-essential spending due to a mismatch between income and expenditure. It’s similar to a private company publicly acknowledging its insolvency.

The purpose of CBAM is to avoid situations where the production of emissions-intensive goods is moved to countries with less stringent environmental policies. Companies importing into the EU will be required to obtain CBAM certificates in order to equalise the price of carbon paid for EU products with that paid for products produced in other countries.

CBAM will initially apply to certain products from carbon-intensive sectors such as cement, iron and steel, aluminium, fertilisers, electricity and hydrogen. As described on the EU taxation website:

“With this enlarged scope, CBAM will eventually – when fully phased in – capture more than 50% of the emissions in ETS covered sectors. The objective of this transition period is to serve as a pilot and learning period for all stakeholders (importers, producers and authorities) and to collect useful information on embedded emissions to refine the methodology for the definitive period.”

Information reported on imported goods includes country of origin, details of the facility where the goods were produced and the geographical coordinates of the main emissions source of the facility. The report should include direct CO2 emissions per tonne and indirect emissions including electricity consumed in the production process.

The EU Commission also published guidance today to help importers and third country producers in implementing the new rules. These range from IT tools to help importers perform and report the emissions in the production process, to training materials such as webinars and tutorials.

Importers missing these reporting requirements will be fined at a low rate (no more than €50 a tonne of carbon emissions) during an 18-month trial period from October 1st. The tax itself will be introduced in 2026. This gradual phasing will allow for a careful, predictable and proportionate transition for EU and non-EU businesses, as well as for public authorities.

Dr Jacqueline Faridani

Dr Jacqueline Faridani heads up Prospect Law’s fast growing ESG practice. She is an advisor in financial risk management with 20 years of experience in a variety of risk management, compliance and product control roles at Canadian, German, French and Russian banks and life insurance companies, as well as for the Canadian financial regulator (OSFI).

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

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