Although there is only preliminary agreement on the "Regulation establishing a Carbon Border Adjustment Mechanism," the Carbon Border Adjustment Mechanism (CBAM) will almost certainly enter into force from October 2023. With this system, CO2 emissions must be paid for when specific goods are imported into the EU. This concerns emissions released during the production of goods produced outside the EU and imported into the EU. In other words, a carbon border adjustment.
On October 1, 2023, the transition phase will begin (until December 31, 2025). During the transition phase, Customs must inform the importer / the CBAM declarant of the reporting requirement when importing CBAM goods. This is actually still a simplified CBAM version with the main purpose of collecting information.
After the transition phase (2026), Customs will have to ensure that goods covered by CBAM regulations can only be imported by authorized CBAM declarants. As a result, in addition to the reporting obligation, there will also be financial obligations, among other aspects, and importers will have to purchase CBAM certificates. This purchase obligation will be phased in parallel with the phasing out of free EU ETS allowances.
Importers of CBAM goods are thus required to report to the European Commission (through the competent authority in the Netherlands, probably Customs) during the transition phase. In doing so, they must include the quantity of imported CBAM goods and the corresponding embedded emissions expressed in tons of CO2 emissions, and indicate whether a CO2 price already applies in the country of origin.
Initially, the CBAM will apply only to some specific products in some of the most carbon-intensive sectors: iron and steel, cement, fertilizers, aluminum, electricity and hydrogen, as well as some precursors and a limited number of downstream products.
The CBAM should prevent the EU's efforts to reduce its GHG emissions from being undermined by higher emissions outside the EU due to the relocation of production to non-EU countries (with less stringent climate targets) or increased imports of more carbon-intensive products.
We are closely monitoring developments under the CBAM and we will keep you informed!
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Do you have questions about the "Regulation Establishing a Border Carbon Adjustment Mechanism" (CBAM) or other international trade law issues? Feel free to contact one of our lawyers.