We explain the scope and penalties of EU plans stop emissions being shifted to low-regulation markets,
In February, the European Commission (the Commission) published the Omnibus package which aims to reduce regulatory burdens for businesses. COM(2025) 87 of the Omnibus package (the Proposal) includes proposed changes to the EU Carbon Border Adjustment Mechanism (CBAM), a mechanism designed to prevent carbon leakage by imposing a carbon price on imported CBAM goods. The Proposal aims to simplify the EU CBAM while "preserving its environmental integrity". In light of the evidence obtained from the operation of the EU CBAM in the 18 months since its implementation, the Commission not only considers this to be possible, but necessary to enable future scope expansions.
The Proposal has not yet been adopted into law. The European Parliament and the European Council agreed their negotiating positions on 22 May and 27 May respectively. The next step is for trilogue negotiations to begin with inter-institutional agreement expected no later than July. It is expected that the Proposal will come into force by September 2025.
Key changes include:
- amendment of the de minimis threshold for importers of certain CBAM goods;
- the introduction of default values in respect of the carbon price paid in third countries and embedded emissions;
- amendments to the penalty regime; and
- a number of administrative amendments to facilitate the implementation and operation of the CBAM.
Introduction of a mass based de minimis threshold
Feedback from the transitional phase of the CBAM indicates that the compliance burden is onerous on occasional importers, particularly in 4 key sectors, ie iron and steel aluminium, fertilisers and cement. In Q4 2023 – Q3 2024, in these sectors, around 80% of CBAM importers accounted for 0.1% of all imported emissions embedded in CBAM goods, and 10% of importers accounted for more than 99% of the emissions.
In light of this, the Commission accepts that the current monetary value de minimis threshold, applied on a consignment basis, is not fit for purpose. The Proposal aims to replace this with an exemption based on an annual mass threshold of 50 tonnes per importer. This threshold will apply cumulatively to imports across the 4 key sectors.
Importers who self-identify as "occasional CBAM importers" would be exempted from the authorisation obligation; no further administrative steps would be required (although they would be required to monitor that they do not exceed the threshold over the year). To ensure that the CBAM remains an effective climate instrument, the Commission would review the threshold by 30 April every year to ensure that it captures at least 99% of the emissions embedded in imported goods.
The Proposal would amend the current CBAM regulation to specify that the Commission and National Competent Authorities (NCAs) are jointly responsible for the monitoring of occasional importers and for detecting those that exceed the threshold.
Introduction of default values
In the interests of simplifying the application of the CBAM, the Commission proposes to amend the current CBAM regime to enable declarants to freely choose between:
- in respect of embedded emissions in goods other than electricity, (1) embedded emissions and (2) default values with a mark-up (as determined by the Commission); and
- in respect of a carbon price paid in third countries, (1) a default carbon price set by the Commission and (2) a deduction of the carbon price effectively paid. However, if declarants use default values to determine embedded emissions, they may only use the default carbon price.
The Commission will calculate default values based on the "best available data". It is not clear what methodology would be used to calculate these default values, which has caused concerns in industry regarding the double payment of a carbon price when CBAM goods are imported from countries with a high carbon price. The Commission may determine, publish the methodology and make available, the default carbon prices for third countries from 2027.
Amendments to the CBAM penalty regime
The Proposal would allow a penalty for failure to surrender CBAM certificates to be decreased in certain mitigating circumstances (eg, past compliance, the extent of unreported information, cooperation with the relevant authorities and whether the behaviour was unintentional). The Commission does not propose to amend the regime following the payment of a penalty:
- a declarant would still be subject to the obligation to surrender the outstanding number of certificates; and
- a non-declarant who introduced goods into the EU without complying with the current CBAM regulation would be released from the obligation to surrender certificates, but the penalty would be three to five times higher than for a declarant.
Administrative amendments to facilitate the implementation of the CBAM
Delayed start date for the sale of CBAM certificates
The Proposal proposes to delay the start date for the sale of CBAM certificates from 1 January 2026 to 1 February 2027. Declarants would have until 30 September 2027 to purchase certificates corresponding to the embedded emissions declared for 2026. Certificates purchased in 2027 to cover 2026 emissions would be cancelled on 1 November 2027 without any compensation.
Changes to the annual CBAM schedule
The Proposal proposes the following changes to the annual deadlines for CBAM:
- declarations for the preceding calendar year must be submitted by 30 September;
- CBAM certificates corresponding to the embedded emissions declared for the preceding calendar year must be surrendered by 30 September;
- repurchase requests must be submitted by 31 October of each year during which CBAM certificates were surrendered; and
- CBAM certificates purchased in the year before the preceding calendar year would be cancelled on 1 November without compensation.
Requirement for ownership of certificates at the end of each quarter to be reduced
Under the current regime, at the end of each quarter declarants must ensure that they own a number of certificates which corresponds to at least 80% of the embedded emissions in the CBAM goods they have imported that year. The Commission proposes to reduce this to 50% to ease the financial burden on importers (as fewer certificates will need to be purchased earlier in a year).
Increase in the number of certificates that can be repurchased
Under the current CBAM regime, NCAs can repurchase excess CBAM certificates from declarants, up to a maximum of one third of the total number of CBAM certificates purchased by the declarant in the previous calendar year. This limitation, combined with the previous 80% ownership requirement, may lead to some declarants being required to purchase CBAM certificates that they ultimately do not need but which cannot be repurchased. The Commission recognised that this could impose an unnecessarily high financial burden on declarants.
Therefore, the Proposal allows the repurchase of all CBAM certificates that a declarant is required to purchase under the ownership requirement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
