CBAM Regulation — Deadlines, Reporting Requirements and Penalties

Introduction

The Carbon Border Adjustment Mechanism (CBAM) is a central component of the EU's strategy to achieve net-zero greenhouse gas emissions by 2050 and plays a crucial role in the fight against climate change. The aim is to address the so-called carbon leakage by introducing a carbon border tax, which should contribute to a fairer competitive landscape within the EU. Companies affected by this regulation must fulfill their first reporting obligations by January 31, 2024, at the latest.

What is CBAM?

CBAM, the Carbon Border Adjustment Mechanism, is a climate policy instrument of the European Union designed to combat carbon leakage. This phenomenon occurs when industries in countries with strict climate protection regulations are economically disadvantaged compared to states with less stringent guidelines. Such a shift leads to an increase in global greenhouse gas emissions, undermining climate protection efforts.

Therefore, the goal of CBAM is to impose a carbon price on imported goods based on their embedded CO₂ emissions to ensure fair competition among various industries.

Main Characteristics of CBAM:

• One of the central pillars of the EU's "Fit for 55" agenda
• Focuses on the embedded CO₂ emissions of imported goods (Cradle-to-Gate or Gate-to-Gate), thus on the upstream supply chain
• By imposing a carbon price on imported goods, equal competitive conditions are to be created

Who is affected by CBAM?

During the transition phase of CBAM, the emphasis is on industries known for their substantial CO₂ emissions and a high likelihood of carbon leakage.

Affected industries:

• Iron and Steel - Direct
• Aluminum - Direct
• Hydrogen - Direct
• Fertilizers - Direct and Indirect
• Electricity - Direct and Indirect
• Cement - Direct and Indirect

CBAM primarily aims to capture direct greenhouse gas emissions that occur during the production of goods up to their arrival in the EU customs territory, ensuring a uniform approach. These direct emissions, resulting from the generation of heat and cold (Scope 1), are considered regardless of their place of origin. Additionally, indirect emissions generated during the electricity production for manufacturing these goods are captured, where the location of electricity generation (Scope 2) is also irrelevant.

The current regulations refer to products manufactured entirely outside the EU and goods whose critical production phase took place in a non-EU country, especially if the production involves several countries. Imports worth less than 150 euros per shipment are to be exempt from CBAM regulations.
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CBAM timeline - general deadlines

The transitional phase of the CBAM has been in effect since October 1, 2023, initially concentrating solely on the reporting of greenhouse gas emissions for specific products. From 2026, the permanent payment system will come into force, making the purchase of certificates for financial compensation mandatory. The full integration of the CBAM framework into the EU Emissions Trading System (ETS) for all end products will take place by 2034.
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CBAM Transitional Phase since October 1, 2023

The introduction of CBAM is planned as a gradual process, starting with an initial phase on October 1, 2023. The industries mentioned above are obligated to submit a quarterly CBAM report by January 31, 2024, indicating the amount of direct and indirect emissions released in the production process of the imported goods. During this period, no financial compensation through the submission of a corresponding amount of CBAM certificates is required.

Update: Due to technical issues with the EU's registration and reporting register, the deadline has been extended by 30 days (end of February 2024). This option is only available if no report has been submitted by February 1. Companies that have already submitted their report can amend their information until July 31, 2024. According to the European Commission's announcement, delayed submissions of a CBAM report due to technical disruptions will not be penalized, provided the submission occurs immediately after the disruptions are resolved.

CBAM Implementation from January 1, 2026

After the transition phase, importers must annually declare the amount of imported goods and the greenhouse gas emissions contained therein to the EU. For this purpose, appropriate CBAM certificates must be submitted. Additionally, importers must have the data collected from their suppliers verified by independent auditors and submit this information annually in a CBAM declaration. If a carbon price exists in the country of origin, a reduction of the certificates to be submitted can be requested.

From 2034

Under the EU ETS, there will no longer be any free emission certificates. 100% of the embedded emissions must be fully offset by purchasing CBAM certificates.

Reporting requirements for EU importers

EU importers are required to submit a detailed statement to the European Union on the following aspects.

Until 2025 (quarterly)

• The total quantity of each type of goods imported in the preceding calendar year, expressed in megawatt-hours for electricity and in tonnes for other goods.
• The total embedded emissions in these goods, expressed in tonnes of CO₂e emissions per megawatt-hour of electricity or, for other goods, in tonnes of CO₂e emissions per tonne of each type of goods.

From January 1, 2026 (annually)

• The total number of CBAM certificates for the total emissions of the imported goods. This figure will be adjusted to account for both the carbon price paid in the country of origin and the scope of free EU ETS certificates allocated.
• The price is based on the weekly average price of EU ETS auction certificates in €/tonne CO₂.
• Copies of verification reports issued by accredited auditors.

Sanctions in case of infringement

According to Article 16 of the CBAM Implementing Regulation, the following penalties are set:

1. Fines between 10 and 50 euros per tonne of unreported emissions if:
   • the reporting registrant fails to submit a required CBAM report,
   • the submitted report is incomplete or incorrect and is not corrected even after being requested by the competent authority.

Article 16(3) specifies factors to be taken into account when determining the level of penalties, such as the extent of the unreported data, the quantity of goods concerned, the associated unreported emissions, the declarant's intent or negligence and the declarant's willingness to cooperate.

1. Fines above 50 euros per tonne of unreported emissions if:
   • incomplete or inaccurate reports are submitted more than twice in succession,
   • reporting is delayed by more than six months.

The implementation of Article 16 of the CBAM Implementing Regulation into national law is still pending, where necessary.
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5 steps to comply with CBAM regulations

As an EU importer, compliance with the new CBAM regulations must be ensured. Five essential steps must be followed.

1. Verification
   The imported products must be listed in Annex I of the CBAM Regulation. For detailed information and advice, it is recommended to contact the national authority responsible for CBAM in the country where the company is based.
2. Registration
   Companies should register through the CBAM transitional register. In the course of this registration, the appointed representative is required to upload quarterly reports on the emissions contained in the imported goods.
3. Assurance
   Trade partners outside the EU must be informed about the detailed guidelines of the European Commission. Moreover, companies need to understand the process of calculating the emissions contained in their products according to the given instructions.
4. Compliance
   Engaging intensively with the training materials provided by the European Commission is essential to ensure a comprehensive understanding of the new reporting regulations and associated tools.
5. Reporting
   The first quarterly CBAM report must be submitted by January 31, 2024, at the latest, covering imports in the fourth quarter of 2023. The submission of CBAM reports is done in the CBAM transitional register of the European Commission. This example file illustrates how reporting in XML format is conducted.

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5 Schritte, um die Einhaltung der CBAM-Vorschriften sicherzustellen

Als EU-Importeur muss die Einhaltung der neuen CBAM-Regulierungen sicher gestellt werden. Dabei sind fünf wesentliche Schritte zu beachten.

1. Schritt: Überprüfung
   ‍Die importierten Produkte müssen in Anhang I der CBAM-Verordnung aufgelistet sein. Für detaillierte Informationen und Beratung empfiehlt es sich an die für den CBAM zuständige nationale Behörde in dem Land zu wenden, in dem das eigene Unternehmen ansässig ist.‍
2. Schritt: Registrierung
   Unternehmen sollten sich über das Übergangsregister des CBAM registrieren. Im Zuge dieser Registrierung ist der benannte Beauftragte dazu angehalten, vierteljährliche Berichte über die in den importierten Waren enthaltenen Emissionen hoch zu laden.‍
3. Schritt: Sicherstellung
   Handelspartner außerhalb der EU müssen über die detaillierten Richtlinien der Europäischen Kommission aufgeklärt werden. Außerdem müssen Unternehmen den Prozess der Berechnung der in ihren Produkten enthaltenen Emissionen gemäß der vorgegebenen Anleitung verstehen.‍
4. Schritt: Befolgung
   Eine intensive Auseinandersetzung mit den von der Europäischen Kommission zur Verfügung gestellten Schulungsunterlagen ist essentiell, um ein umfassendes Verständnis der neuen Berichterstattungsvorschriften und der dazugehörigen Werkzeuge zu gewährleisten.‍
5. Berichterstattung
   Der erste vierteljährlichen CBAM-Bericht muss bis spätestens 31. Januar 2024 eingereicht werden und Importe im vierten Quartal des Jahres 2023 abdecken. Die Einreichung der CBAM-Berichte erfolgt im CBAM-Übergangsregister der Europäischen Kommission. Diese Beispieldatei veranschaulicht, wie eine Berichterstattung im XML-Format durchgeführt wird.

CBAM reporting example

The CBAM has diverse impacts on companies, significantly depending on their organizational structure. Therefore, implementing CBAM requires an in-depth analysis of supply chain processes to understand the reporting requirements and cost accounting. It is particularly important to consider the complex interrelationships between subsidiaries and suppliers, both within and outside the European Union. A comprehensive understanding of these structures is relevant to make strategic decisions that comply with regulatory requirements and maintain the company's competitiveness.

The following graphic presents a reporting example:

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How does Tanso support with CBAM?

With the help of Tanso's software, you can calculate your Corporate Carbon Footprint (CCF), including procurement emissions (Scope 3.1), and make distinctions. Our software supports different levels of accuracy and methods, allowing you to balance specific product groups supplier-specifically and others based on quantities with industry averages or emission factors. This functionality meets the requirement of CBAM and enables you to create a basis for regular CBAM reports, along with customs information. If you would like to learn more about how our software can help your organization with decarbonization or improve existing initiatives, you are welcome to contact our team.