BlogCarbon Border Adjustment Mechanism (CBAM)

EU sets CBAM rules for transitional period

Written by

Ulf Narloch

Published on

The EU’s regulatory framework for the world’s first carbon border adjustment is shaping up. The EU Commission adopted the implementing regulation on reporting obligations during the transition period from October and published initial guidelines. Nevertheless, practical implementation challenges for importing companies and their suppliers are expected.

CBAM reporting rules from October

As a central element of the EU Green Deal, the EU Carbon Border Adjustment Mechanism (CBAM)  starts October 2023. This marks the beginning of the transitional period of the world’s first carbon border adjustment. From 2026, a carbon-based levy will be introduced for imports coming into the EU.

On August 17, 2023, the EU Commission adopted the implementing regulation on the reporting obligations in the transitional period. This regulation details the implementation rules from October 2023 to December 2025 for the purpose of establishing CBAM. The rules for the full system from 2026 are still being drafted. 

Earlier, following a four-week consultation period, the CBAM Committee approved the text of the implementing regulation with 21 votes in favor and 4 abstentions. Compared to the draft presented in June, only minor changes were made. 

For now, EU imports from third countries of goods made of iron and steel, aluminum, cement, fertilizers, electricity and hydrogen are covered by CBAM. Reporting obligations apply to EU companies importing these goods. However, their non-EU suppliers are also affected by the data requirements.

Challenges for CBAM implementation

Already in the transitional period, importers must report on import volumes, CO2 emissions, and carbon prices paid in the country of origin. The first report for the fourth quarter of 2023 must be submitted via the EU CBAM transitional registry by January 31, 2024. Violations will be punished with EUR 10-50 per ton of unreported CO2.

The text of the regulation and the 100-page technical annex detail these reporting requirements. These will likely lead to a high administrative burden for companies.

Implementation challenges are expected in the following areas:

  1. Technical systems: In order to keep manual data entries into the CBAM transitional registry to a minimum, it is necessary to create interfaces with existing IT systems and databases
  2. Data management: The entry of very granular and time-variable data for individual goods as well as installations requires solutions for the collection, processing, and recording of extensive datasets
  3. Reporting process: For data collection, different stakeholders must be involved throughout the supply chain – from plant operators to suppliers of precursors. New reporting processes also need to be set up int

In a statement, the German Chamber of Industry and Commerce (DIHK) also warns against hasty and bureaucratic CBAM implementation.

Also the International Chamber of Commerce criticized the short preparation time and high complexity,  which would lead to major implementation challenges, especially in SMEs.

CBAM implementation guidelines

In order to facilitate the implementation of CBAM reporting, the EU provides guidance on how to implement the reporting obligations for EU importers and non-EU plant operators. These non-legally binding documents are intended to help interpret the legal documents.

EU Importers

A 100-page guide for importers (version from 13/12/2023) provides an introduction to CBAM reporting. Importers are responsible for submitting CBAM quarterly reports consisting of three sections:

  1. Installation-specific part: Information on installations or plants producing the imported goods, manufacturing processes, produced quantities and generated emissions, and calculation parameters as well as paid CO2 prices (100+ data fields per installation)
  2. Goods-specific part: Breakdown of import volumes by 8-digit commodity code, countries of origin, relevant customs procedures, and (direct and indirect) emissions of the goods (approx. 60 data fields for each commodity code)
  3. Installation-specific part: Information on installations or plants producing the imported goods, manufacturing processes, produced quantities and generated emissions, and calculation parameters as well as paid CO2 prices (100+ data fields per installation)

Since the installation-specific data should primarily come from the operators, the main task of the importers is to collect the goods-specific data and to ensure that collected information for the reports are complete and correct. 

Non-EU plant operators

Facility and plant operators play a crucial role in providing installation-specific data, including the relevant emissions intensities. These are all operators of fixed installations and plants that produce goods falling under the CBAM regulation

These operators are either direct suppliers to EU importers or to an (intermediary) distributor who then exports to the EU. Since emissions from precursors are also recorded, data from manufacturers of precursors also needs to be collected.

A nearly 300-page guide for non-EU plant operators (version from 8/12/2023) explains the CBAM methods for monitoring, reporting and verifying (MRV) emissions. These are based on the MRV rules in the EU Emissions Trading System (ETS), as the CBAM levy will ultimately be linked to the EU ETS price from 2026.

Although alternative methods can be chosen for the first reports, the EU will require the use of the CBAM method for determining emissions starting in 2025. This can lead to a double reporting effort for plant operators if they report emissions in their own country according to a different methodology.

In order for the importers to obtain the data from the plant operators, the EU provides a data communication template. The use of this template is not mandatory, but it should ease data collection for the CBAM report.

The electronic template in XLS format (version from 7/11/2023) is divided into two parts:

  1. Minimum information required for importers to enter the required plant, emissions and CO2 price data in the quarterly report
  2. Optional information for better transparency and validation of the reported data; several spreadsheets are available for this purpose, which automatically calculate emission values from the data entered 

The guidance also points out that there is no formal reporting obligation for non-EU plant operators, but their participation is essential for the reporting obligations of EU importers. It remains to be seen whether and in what form EU importers will receive data from the plant operators.

More guidance to come

The standard values for emission factors of CBAM goods, which can be used for determining emissions data under certain conditions, were published by the EU commissions on December 22. They are informed by findings from a technical report by the JRC.

The CBAM transitional registry for recording the quarterly data and the accompanying user manual (version 2/10/2023) are further important reporting elements. The specific functions of the register and reporting requirements determine the required reporting effort.

Initial learning modules are already being made available via the EU Customs & Tax Learning Portal, e.g. Nano Learning Module. Sector-specific webinars provide further information.

According  to the EU Commission’s timetable, further supplementary regulations are to follow in Q3 2025 and Q2 2025 for CBAM implementation from 2026. With up to 18 legal provisions or specific subject areas, a comprehensive set of rules can be expected for CBAM implementation. 

(this blog is frequently updated – last update December 22, 2023)

Sources and further information:

Photo by  William William on Unsplash