Client Alert: First CBAM Quarterly Reporting Period ends on January 31

Summary 

On 1 October 2023, the European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM) entered into the transitional phase, with the first reporting period covering carbon-intense goods imported during the period 1 October 2023 to 31 December 2023, ending on 31 January 2024. 

CBAM reporting declarants, businesses active in the cement, fertiliser, iron & steel, aluminium, electricity, and hydrogen sectors must file their first quarterly CBAM reports to comply with the respective EU regulations. 

The quarterly CBAM reporting must include: 

• quantities of CBAM goods imported, specified per country of origin per production site where the goods are produced;
• embedded direct greenhouse gas emissions;
• the carbon price due in the country of origin. 

The CBAM represents a crucial component of the EU’s Green Deal which aims to set the bloc’s economy on the path to a green transition. The CBAM imposes significant compliance and reporting obligations on businesses involved in the import of selected goods into the EU. These reporting obligations – which will concern more industries from 2026 and 2030 will cover all products that fall under the scope of the EU ETS – signal the start of a stricter approach of the EU towards harmonising trade relations and environmental sustainability. The CBAM quarterly reporting obligation remains in place until the end of 2025. 

This article provides an overview of the CBAM, and its implications for businesses, and outlines the new reporting requirements that were introduced with the transitional phase. 

Background of CBAM 

Introduced as part of the EU’s initiatives to achieve carbon neutrality by 2050, the CBAM serves as a key instrument to prevent carbon leakage and promote a global green transition. Its primary objective is to level the playing field for European industries by imposing a carbon cost on imports of certain goods from outside the EU. This mechanism ensures that ambitious climate policies in Europe do not lead to ‘carbon leakage’, whereby companies transfer production to countries with less stringent emissions constraints in order to circumvent strict EU constraints. It targets sectors with particularly high carbon emissions such as cement, fertilizers, iron and steel, electricity, hydrogen and aluminium. 

The CBAM is designed to complement the EU’s Emissions Trading System (ETS), to ensure that climate costs are reflected in the price of imports, just as they are for products produced within the EU in order to level the playing field for the EU industry. 

CBAM Reporting in General 

Under the CBAM, certain importers are required to report greenhouse gas emissions associated with the production of their goods. This reporting is critical for the EU to assess the carbon footprint of imported products and align them with the EU’s overall environmental goals. The reporting process involves calculating the direct and indirect emissions associated with the production of imported goods, which is based on specific guidelines provided by the EU, which aim to standardize the reporting process and ensure fairness and transparency. 

Corporations will have three different options for reporting until the end of 2024, with either:

• full reporting based on the incoming methodology (EU method), 
• reporting on an equivalent method (three options), or 
• reporting based on default reference values (only possible until July 2024). 

From January 2025, all reporting must occur following the EU method and estimates can only be used for complex goods if these estimations represent less than 20% of the total embedded emissions. The European Commission has set up a CBAM transitional registry for importers, available to businesses through the National Competent Authority (NCA) of the Member State in which the importer is established. 

Reporting obligations under the transitional phase of CBAM 

The transitional phase of the CBAM started on 1 October 2023, which aims to help businesses to prepare for the next stages of the CBAM, when a carbon price will be applied to imports based on data gathered after the filing of the initial reporting. In this phase, Importers must familiarize themselves with the reporting guidelines and ensure they are capable of accurately tracking and reporting emissions data. This means that importers of the relevant products into the EU will need to start keeping detailed records of the emissions associated with their products. 

In addition, as the first quarterly reporting period of the transitional phase will end on 31 January, importers active in the cement, fertiliser, iron & steel, aluminium, electricity, and hydrogen sectors must file their first quarterly CBAM reports to comply with the respective EU regulations. The quarterly reports must include (i) quantities of CBAM goods imported, specified per country of origin per production site where the goods are produced; (ii) embedded direct greenhouse gas emissions; and (iii) carbon price due in the country of origin. 

Non-compliance could result in penalties and could impact the ability to import into the EU market. 

The CBAM underscores the importance for companies engaged in importing specified goods into the EU to understand and prepare for the CBAM reporting requirements. It is not just a regulatory compliance issue but also a step towards a global transition that recognizes and attempts to mitigate the environmental costs of production and trade. 

Reach out to us at info@acquislp.eu to learn more about CBAM and other EU regulatory and compliance matters.