BlogCarbon Border Adjustment Mechanism (CBAM)

Comprehensive CBAM reporting from October  

Written by

Ulf Narloch

Published on

A high reporting burden for importers is emerging in the transitional period of the EU’s Carbon Border Adjustment Mechanism (CBAM). According to the draft implementing act for the reporting obligations from October 2023 emissions from the production of imported goods must be determined, among other things. Affected companies should immediately check how these data requirements can be met.  

CBAM rules in development   

The introduction of the EU Carbon Border Adjustment Mechanism (CBAM) requires detailed rules for the implementation of this new – the first in the world – instrument for pricing embedded CO2 emissions in imported goods.  

From 2026, an import levy must be paid via the purchase of CBAM certificates. In the transitional period until then, affected companies will only be subject to reporting obligations.  

With importers of goods made of iron and steel, aluminium, cement, fertilizers, electricity and hydrogen, a large number of companies of various sizes and industries are subject to these obligations. 

Following the entry into force of the regulation introducing the CO2 border adjustment system in May 2023, work is now underway on supplementary implementing acts. These set out the practical rules for implementation.  

The EU Commission has now launched a consultation on the first implementing act on reporting obligations in the transitional period. The draft is available for comment until July 11 before it is discussed in the CBAM Committee and adopted by the EU commission.

Comprehensive reporting requirements 

From October 1, 2023, the embedded emissions in imported goods should be reported to the EU on a quarterly basis.  High administrative burdens are expected for implementation.  

The reporting obligations must be fulfilled by the importing companies themselves. Only in the case of indirect customs representation can these duties be taken over by a customs office. 

Required information 

The quarterly reports must be submitted one month after the end of the quarter in question via an electronic CBAM transitional registry. The following information is required: 

  1. The quantity of imported goods identified by the code numbers,  
  2. Combined Nomenclature (CN) must be identified and broken down 
  3. Direct emissions from the production of the goods, including information on plant-specific emissions and manufacturing processes 
  4. Indirect emissions from the electricity consumed during production, including plant-specific electricity consumption and sources as well as emission factors 
  5. (If applicable) CO2 prices already paid in the country of origin minus refunds and compensation payments  

Especially for importers who import a wide variety of CBAM goods from different suppliers that buy from a number of production installations, this results in very extensive report.  

System boundaries 

For the CBAM goods, the total embedded emissions, which are released during the manufacturing process must be determined: 

  1. Direct emissions: All emissions caused by the production of the goods from emission sources of the installation as well as heat and material flows, including emissions from relevant precursors 
  2. Indirect emissions: Total electricity consumption of the plant for the production of the goods, plus the facilities for relevant precursors 

The system boundaries are detailed in special rules for each commodity category. For iron & steel these categories include iron ore, pig iron, crude steel, alloys, and iron and steel products.    

Permitted emission values 

For the determination of direct emissions, a hierarchy is established for the methods to be used: 

  1. CBAM method for (i) calculating emissions from material flows based on activity data or (ii) measuring emissions from emission sources by continuous measurement  
  2. National methods applied on the basis of equivalent reporting systems in the country of origin (e.g., via a CO2 pricing system) (only allowed until the end of 2024) 
  3. Other methods, in case the information for the application of the other methods is not available (only allowed until July 2024); these include deafualt values, which can also be used beyond July 2024 for complex good for up to 20% of the total emissions 

While a certain amount of flexibility in the choice of calculation method will be granted initially, from 2025 onwards, only the calculation using the CBAM method will be permitted. 

High data requirements 

These requirements for CBAM reporting obligations result in comprehensive requirements for the data needed for the reports: 

  1. Breakdown of goods data: Not only quantities of goods broken down into eight-digit CN codes are required. Technical data of the installations used to manufacture these goods is also demanded. If several production processes are used within one production plant, they must be differentiated accordingly.  
  2. Coverage of the entire supply chain: By recording emissions of precursors, data is required not only from plant operators but also from suppliers of precursors. This may require tracing the supply chain down to raw materials.  
  3. Aggregation of data: The collection of sometimes small-scale data sets from numerous suppliers requires a systematic data recording so that data can be aggregated to the required total values with as little effort as possible. 

For standardised data collection from suppliers, the EU is going to provide an electronic form (v1.0 published October 23). In practice, these data will be presented in various (including non-electronic) formats. 

Importers will have to rely on the cooperation of their suppliers and manufacturers of goods and intermediate products. This could be difficult for manufacturers who do not have a direct contractual relationship with importers. 

Further IT tools as well as detailed information, training material, and instructions for calculating CO2 emissions have been announced by the EU Commission. However, it remains to be seen how smaller companies with limited capacities can implement these in practice.  

Time is short 

From this draft implementing regulation it already becomes clear that reporting efforts are going to be considerable. Affected companies should start preparing immediately. 

Since the first quarterly report is due by January 31, 2024, there is not much time left for this. Already in the transitional period, sanctions of EUR 10-50 per tonne of CO2 are foreseen for non-compliance with these reporting obligations.  

From 2026 onwards, even stricter sanctions will be imposed. Then reports will also come with financial obligations resulting from the CO2 levies to be paid. Even though the cost implications are likely to be small initially, there are significant risks.  

Therefore, affected companies should be used to align internal processes, data systems and IT applications with the CBAM requirements by then. Suppliers should also be informed and enabled at an early stage to collect the necessary data.  

(this blog is frequently updated – last update November 2, 2023) 

Sources and further information: 

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