The Carbon Border Adjustment Mechanism… what you need to know

May 10th, 2024

Important information for clients importing goods into the EU

The European Union (EU) has implemented a new regulation – Regulation (EU) 2023/956 – called the Carbon Border Adjustment Mechanism (CBAM), which will significantly impact businesses importing goods into the EU.

This mechanism aims to create a level playing field for carbon emissions and incentivise a global shift towards cleaner production practices.

What is CBAM?

The EU has ambitious climate goals, aiming for carbon neutrality by 2050.

CBAM functions by placing a fee on the carbon footprint embedded in specific imported goods. The direct aim is to equalise carbon pricing for both products manufactured within the EU and those imported from outside.

CBAM addresses the concern of “carbon leakage,” whereby companies relocate production to countries with less stringent environmental regulations to avoid carbon pricing within the EU.

By placing a charge on the carbon footprint of imports, the EU wants to discourage this practice and encourage global efforts towards sustainability.

Products affected by CBAM

Currently, CBAM applies to a specific group of carbon-intensive goods deemed to have a high risk of carbon leakage, including:

  • Cement
  • Iron and steel
  • Aluminium
  • Fertilisers
  • Electricity, and
  • Hydrogen

The EU may broaden the scope to encompass additional products in the future.

Key requirements and deadlines

CBAM entered a transitional phase in October 2023.

This initial period allows for a smooth transition and familiarisation with the new mechanism for economic operators and authorities.

As of 31 January 2024, importers are required to submit information on imported products within scope quarterly.

Under CBAM, importers have specific obligations during the transition phase, namely to:

  • Check if the goods being imported are listed in Annex I to the CBAM Regulation
  • Register through their National CBAM Competent Authority for the CBAM transitional registry (this is where reports will be uploaded), and
  • Submit CBAM reports on a quarterly basis: importers are responsible for calculating the embedded carbon emissions associated with their imported goods during the full transition period from 1 October 2023 through 31 December 2025

Full implementation is expected in 2026, based on insights gained from the transitional phase.

During full implementation, a CBAM certificate programme will be implemented for CBAM declarants.

What should you do?

Landbell Group company, H2 Compliance strongly advises clients to assess the potential impact of CBAM on their import activities into the EU.

Companies that import any of the currently listed goods, or those considering importing such goods in the future, should carefully evaluate their compliance obligations.

Consulting with trade experts or customs brokers is highly recommended for detailed guidance on navigating the CBAM requirements.

H2 Compliance partners with organisations that can help clients navigate this complex regulation.

Please contact H2 Compliance with any questions or concerns you may have regarding CBAM and its implications for your business here.

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