Just in time for the start of the transitional period of the EU’s carbon border adjustment, the CBAM transitional registry has been activated. Other administrative elements for the CBAM reporting have also been set-up. Overall, however, there is little time for affected EU importers to get their reporting ready.
Short-term CBAM introduction criticized
The start of the EU Carbon Border Adjustment Mechanism (CBAM) brings far-reaching new rules for importing companies in the EU. The reporting obligations for the transitional period have only been decided this August.
With imports of iron and steel, aluminum, cement, fertilizers, electricity and hydrogen, CBAM affects large parts of the industry and is likely to transform supply chains with the introduction of the CO2-based import levy from 2026.
For example, The Conference Board, a non-profit business organization, notes that 75% of its surveyed European member companies expect an impact on procurement decisions.
Until 2026, the administrative effort required to implement the reporting obligations will be particularly high. The International Chamber of Commerce had already criticized the short preparation time and high complexity, which would lead to major implementation challenges, especially in SMEs.
DIHK also complains about a “hasty and very bureaucratic” implementation as well as considerable burdens for many companies and calls for grace periods, de minimis limits and support for CBAM administration, crucially for SMEs.
The new CBAM requirements come at a time when the EU calls for easing bureaucracy. In her State of the Union address, Ursula von der Leyen announced proposals to reduce reporting requirements at the European level by 25% and the appointment of a special envoy for SMEs.
However, since the management of the CBAM import levy from 2026 onwards requires new data on import volumes and emission intensities, it is essential to build up the data foundations in companies and public authorities.
For this purpose, extensive CBAM data will be required from 1.10.2023, which shall be submitted to the EU Commission in a quarterly report. CBAM obligations are due with the import of the CBAM goods into the customs territory of the EU.
CBAM penalties loom
Penalties may be imposed on importers who fail to comply. These penalties can be imposed if reports are not submitted or if the information contained therein is incomplete or inaccurate and corrective measures are not taken.
The penalties range from EUR 10 to EUR 50 per tonne of unreported emissions, which are calculated based on default values published by the EU Commission. Based on import volumes, this can lead to significant penalties for CBAM goods.
Even higher penalties could be set if reports contain incomplete or inaccurate information twice in a row, or if reports are not received 6 months after the reporting deadline.
How exactly the level of penalties is determined is at the discretion of competent national CBAM authorities, so different interpretations in EU countries are to be expected.
CBAM administrative elements
While the CBAM reporting requirements for importing companies already take effect as of this quarter, the EU has been setting up the cornerstones of the CBAM administration.
CBAM transitional registry
The CBAM Transition Registry has been activated for the start of the CBAM transitional period. The EU gave a first presentation about the use of the transitional registry and published a user manual on October 27. However, the registry is not yet fully operational.
The transitional registry is set up as a standardized, secure electronic database that will be transferred to the permanent CBAM registry from 2026. Communication between the EU Commission, national CBAM and customs authorities, as well as importers should take place via this registry.
The CBAM Transition Registry consists of several portals. Through the trade portal, importers can submit the quarterly reports via a web or system-to-system interface as well as manage the data they enter.
Importers can now register for access to the CBAM transition register using their Economic Operators Registration and Identification (EORI) number. Access will then be granted by the responsible national CBAM authority.
National CBAM Authorities
The list of the first national authorities for CBAM implementation has been published beginning of October and has been updated since then (last update December 21). With the appointment of Deutsche Emissionshandelsstelle shortly before the end of the year, all competent authorities are now in place.
National CBAM authorities have a central role to play in CBAM implementation. They are responsible, among other things, for reviewing CBAM reports and for initiating correction procedures and sanctions. In practice, they are also the point of contact for the affected importers.
The responsibilities known so far already reveal different approaches at national level. While some countries rely on authorities with ETS competence for CBAM, Austria and Finland have entrusted this to their national customs authorities.
Default values
The default values for calculating the emissions of CBAM goods have also been published by the EU commission just before Christmas. They represent global averages weighted by production volume based on estimations.
For this purpose, the Joint Research Centers (JRC) of the EU has prepared a study on the emission intensities in the CBAM-relevant industries. In this study, the direct and indirect emissions from the production of iron & steel, aluminum, fertilizers and cement are calculated according to the CBAM classifications.
The default values can only be used for the calculation of emissions in the first three quarterly reports (i.e., until July 2024). After that, they can only be used for up to 20% of the total emissions of complex goods, such as products made of iron, steel and aluminum.
More guidelines
Sector-specific webinars on the functioning of CBAM and specific methods for calculating emissions have been held by the EU Commission in recent weeks. The recordings are now published on the EU CBAM website.
In addition to comprehensive guidance for EU importers and non-EU operators, the EU Commission has also provided sector-specific information.
Further information and guidelines for the reporting via the CBAM transitional registry is also available.
Steps to the first CBAM report
Further information is expected from the EU and national authorities by January. This leaves little time for the affected importers to compile the necessary CBAM data for the current quarter.
The following steps are required by affected importers for filing the first CBAM report:
- Review of the import portfolio: Importing companies should screen their commodity portfolio to find out which goods fall under CBAM according to the commodity codes in the customs system. A free online CBAM check is available for this purpose.
- Collection of import data: For the affected commodity codes, it must be checked whether the required import data, in particular, the quantities, are available or how they can be obtained.
- Collection of plant data: In order to determine emissions, data on the production of the imported goods is also required. For this purpose, extensive data must be obtained from the plant operators. The EU has created a communication template for this purpose.
- Report Submission: The collected data must then be compiled on a quarterly basis in the breakdowns required for the CBAM report. The deadline for submission is up to one month after the end of each quarter, i.e. by January 31, 2024 for the current quarter.
A clear definition of responsibilities is required for the implementation of the CBAM reporting. CBAM affects different functions such as procurement, taxes/customs, and CSR/sustainability. In some companies, responsibility for CBAM must first be defined.
Although the current transitional period is considered a test phase, affected companies should use the time until 2026 to build-up their data, systems and processes for the implementation of the CBAM import levy and adjustment of their supply chains.
(this blog is frequently updated – last update December 28, 2023)
Sources and further information:
- European Commission: CBAM starts to apply in its transitional phase
- European Commission: Carbon Border Adjustment Mechanism
- EU: Implementing Regulation on Reporting Requirements
EU: Regulation establishing a CO2 border adjustment system - JRC: Emission Intensities in CBAM Industries
Photo by Alberto Rodríguez on Unsplash
