The Carbon Border Adjustment Mechanism CBAM is an EU CO2 taxation mechanism to support decarbonization strategies and combat carbon leakage. Carbon leakage occurs when carbon prices and other EU measures lead to increased costs and competitive pressure on high-emitting sectors. As a result, production facilities are moved to non-EU countries where there is no CO2 tax, or EU products are replaced by imports from third countries that cause even higher emissions. This shifts greenhouse gas emissions to countries with incomplete or limited climate change targets rather than reducing them. CBAM prevents these bypassing tendencies. This is because when CBAM products are imported into the EU, the prescribed carbon price equivalent to that within the EU must be paid. Companies must then buy so-called CBAM certificates in the amount of the calculated carbon tax.
CBAM applies to products imported from all countries outside the EU, unless the country:
- already participates in the EUETS - such as Iceland, Liechtenstein and Norway, which are members of the European Economic Area ("EEA")
- or - fully links its own emissions trading system to the EUETS and adopts the same carbon price paid under the EUETS - like Switzerland.
The European Parliament and the Council have set 1 October 2023 as the start date of the CBAM Regulation. This begins a three-year transition phase focused primarily on reporting obligations.
In the initial phase, CBAM covers 6 main product lines defined through their NACE codes. These products have been selected based on their high level of carbon emissions and the potential risk of carbon leakage.
- Iron and steel
- Cement
- Fertilizers
- Aluminum
- Electricity
- Hydrogen.
During the transition phase, from 1 October 2023 to 31 December 2025, importers must know the Product Carbon Footprint (PCF) of the specific products they import. The PCF includes direct emissions (categories 1 and 2) and all indirect emissions (category 3) that have come from the product's supply chain so far. This PCF should be calculated based on internationally recognized standards such as the GHG Protocol, ISO 14064, etc.
Although the calculations for embodied emissions will come from the exporter, the responsibility will lie with the EU importer to hold the PCF reports for all imports.
The deadline for the report will be one month after the end of each quarter. Thus, the first report must be submitted in January 2024. During the CBAM transition period, importers are not subject to financial liability beyond the potential penalties for not complying with the possession of the necessary PCFs. From 31 December 2024, importers can apply to be recognized as approved CBAM declarants. Once approved, the approved CBAM registrant will have access to their account in the Pan-European CBAM Registry.
PCF reports must include:
* the quantity of each type of good expressed in MWh or tonnes
* total embodied emissions covering category 1-2-3 emissions
* carbon price attributable to the country of origin for the embodied emissions in the imported goods, taking into account rebates ( rebates) and other forms of compensation.
Extending the EU's CBAM to 2030
After the transitional period of CBAM, the model will be extended to other sectors of the EU ETS gradually until 2030. Thus, CBAM will also be applied sequentially to the following sectors:
- Petroleum refining
- Fossil fuels
- All metals
- Paper and paperboard
- Glass and ceramics
- Acids and organic chemicals
- Aviation
- Shipping
- Lime
From 1 January 2026, importers must have CBAM certificates equivalent to the carbon price of embedded emissions verified by independent bodies. The regulation describes the pricing methodology, recognition of certificates and registration procedures. Importers designated as CBAM declarants are required to establish CBAM accounts and annually submit declarations confirming and submitting the specified number of certificates.
The regulatory framework includes penalties for non-compliance, including late submissions, unauthorized imports and measures to curb circumvention practices.
source: capital.gr (Tasos Nikolaou)