The EU’s CBAM

In the last two weeks, the EU Parliament and the Council of the EU have adopted the EU’s Carbon Border Adjustment Mechanism (CBAM). As a final formality, both bodies need to sign the proposals, after which they will enter into force 20 days after being published in the EU’s Official Journal, all of which is expected to be done within the next few months.

The CBAM introduces a future EU importation levy on the embedded carbon emissions of certain goods. Initially, it covers a number of products in specific carbon intensive sectors (such as iron and steel, cement, fertilisers, aluminium, electricity and hydrogen, some precursors and a limited number of downstream products) but this list is in a state of constant change. The CBAM is aimed at preventing carbon leakage by EU-based companies that relocate their production outside the EU to avoid the EU’s climate regulation costs. It will however impact all importers of such products from anywhere in the world. 

The levying of import charges will only commence in 2026 and it will be introduced gradually over a period of 9 years. At that time, any EU importer subject to the CBAM may get credit for any equivalent charges already paid in their downstream supply chain.

However, administrative reporting requirements will start from 1 October 2023. Hence, any exporters who ship products to the EU would do well to immediately get their heads around these two questions:

• Are the products I ship to the EU captured by CBAM?
  The answer to this question is dependent on the customs tariff classification of your product under the EU’s Combined Nomenclature (CN). Reviewing and / or determining the CN code of your products is thus a first essential step.
• If (some of) the products I ship to the EU are captured by CBAM, what do I need to report come 1 October 2023? How do I report it, and to whom?
  Importers of the products in scope will have to report their embedded GHG emissions of CO2 and, where relevant, nitrous oxide and perfluorocarbons.

More details on CBAM and related measures can be found here.

Beyond immediate CBAM compliance requirements, you may also want to consider reviewing your supply chain to:  

• Assess compliance with emerging labour requirements (such as those in the US and Germany) 
• Evaluate the potential use of Free Trade Agreements 
• Enhance end-to-end supply chain visibility with optimal use of data through TradExchange  
• Explore all available trade facilitation options