EU Carbon Border Adjustment Mechanism (CBAM)

Importers affected by this change should prepare for complying with new reporting obligations for these imports starting in January 2024, along with new CBAM registration requirements beginning in 2025. An additional CBAM carbon cost will be incurred on affected imports starting from 2026.

Summary of CBAM

CBAM, or the Carbon Border Adjustment Mechanism, is designed to prevent 'carbon leakage' by imposing a carbon levy on specific product imports from non-EU and non-EFTA countries. The levy is linked to the carbon price payable under the EU Emissions Trading System (ETS) for the same goods produced within the EU.

As of now, CBAM applies to goods such as iron and steel, cement, fertilizers, aluminum, electricity, and hydrogen. The scope may expand to include additional products by 2026, with the goal of incorporating all EU ETS products by 2030. The inclusion of particular products under CBAM is contingent on their customs duty classification and commodity code, known as Combined Nomenclature or 'CN' codes. A published list of affected commodity codes is available.

During the transitional period from 1 October 2023, importers of CBAM goods must submit quarterly reports detailing quantities, country of origin, production site information, and greenhouse gas emissions, including applicable carbon prices. Alternative methods for reporting emissions data are provided to address challenges faced by reporting declarants such as default values published by the European Commission for the transitional period.

The complete CBAM regulation takes effect on 1 January 2026. Importers will be required to obtain authorization as an 'authorized declarant,' declare yearly quantities and embedded emissions of CBAM goods, and surrender CBAM certificates to cover the declared emissions.

Immediate Actions for Businesses

In the short term, it is advisable to take the following steps:

• Assess Imports and Supply Chains:
  • Evaluate existing and projected imports along with supply chains to identify whether any fall under CBAM.
  • Conduct a thorough examination of Customs classification and origin, particularly in sectors like iron, steel, and aluminum.
• Prepare for Quarterly CBAM Reporting:
  • Where affected, ready yourself for the new quarterly CBAM reporting requirements, with the initial report due by 31 January 2024.
• Engage with CBAM Goods Suppliers:
  • Collaborate with suppliers of CBAM goods to gather pertinent information and identify any potential data gaps.

Long-Term Planning from 2026 Onwards:

Looking ahead to the full implementation of CBAM from 2026, consider the following:

• Anticipate Additional Financial Costs:
  • Understand the potential future financial impact of CBAM on your business and ensure uninterrupted imports of CBAM goods.
• Develop a Strategic Approach:
  • Devise a strategy to manage any potential impact of CBAM on your supply chain. This may involve mitigation measures and broader de-carbonization strategies, engaging relevant stakeholders in the business.
• Implement Robust Customs Duty and Business Processes:
  • Establish and implement robust customs duty and business processes to facilitate compliance with CBAM requirements.
• Review Supplier Contracts:
  • Examine supplier contracts to ensure clarity regarding CBAM obligations, providing a solid foundation for compliance measures.

How Grant Thornton can help

Our team is part of an international network of experts specialising in global trade, customs, and CBAM issues. Given the deadline for the initial CBAM report in January 2024, it is crucial for affected businesses to take prompt action. We welcome the opportunity to engage with you in discussing how our expertise can assist your business in navigating the new CBAM framework.

Should you find your business affected by CBAM and in need of guidance, please reach out to our dedicated CBAM team below or connect with your regular contact at Grant Thornton.