“Climate change is a global problem that needs global solutions”(European Commission). Among the actions taken at EU level, the most important intervention is represented by Regulation (EU) No. 2023/956, published on 16th May 2023 in the EU Official Journal, which established the Carbon Border Adjustment Mechanism (CBAM).

On 10th May 2023, the EU Member States signed the CBAM Regulation, which entered into force the day after its publication in the EU Official Journal on 16th May 2023, with the aim to prevent “carbon leakage”, occurring when EU-based companies relocate carbon-intensive production abroad, to non-EU countries having less stringent climate policies.

The CBAM, being gradually introduced, will allow a fair price to be set on the carbon emitted during the carbon-intensive production of goods, ensuring that the price of imports will be equivalent to the carbon price of domestic production.

Pursuant to Art. 2 of CBAM Regulation, it “applies to goods listed in Annex I originating in a third country, where those goods, or processed products from those goods resulting from the inward processing procedure (…), are imported into the customs territory of the Union.”. The CBAM will apply to imports of certain goods whose production is carbon intensive and presents the most significant risk of carbon leakage (i.e. cement, iron, steel, aluminium, fertilisers, electricity and hydrogen).

What will change for companies?

A first transitional phase, from 1st October 2023 to 31st December 2025, will be a learning phase for the parties involved (importers, producers and authorities) and will set initial rules for importers of goods to report greenhouse gas emissions (GHG) incorporated in their imports, without making any payment. In particular, each importer will have to submit the so-called “CBAM Report” to the Commission, containing the following information:

  • the total quantity of each type of goods (in MWh for electricity and in tonnes for other goods);
  • the total actual embodied emissions (expressed in t of CO2 emissions and per MWh for electricity or, for other goods, in t of CO2 emissions and per  of each type of good);
  • total indirect emissions;
  • the carbon price due in a country of origin for emissions embedded in imported goods.

During the transitional period, the European Commission, after consultation with the CBAM Committee, will have to adopt an implementing act containing rules and requirements for reporting under the CBAM. It is also possible that the CBAM will be reviewed to assess the inclusion of other goods produced in sectors covered by the EU ETS within the CBAM.

As of 1st January 2026, the CBAM system will enter into full force, requiring importers:

  1. to apply for – and obtain – a special authorisation to import goods, thus obtaining the status of “approved CBAM registrant”;
  2. to declare each year the quantity of goods imported into the EU in the previous year and the related incorporated greenhouse gases, while delivering the corresponding number of CBAM certificates.

The certificates will be priced according to the average weekly auction price of EU ETS allowances expressed in €/t of CO2 emitted.

Originally Published by 23 June 2023

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