The European Union's Carbon Border Adjustment Mechanism (CBAM)

As of October 1, 2023, the European Union has taken a significant step in its battle against climate change with the introduction of the Carbon Border Adjustment Mechanism (CBAM). This mechanism represents a substantial shift in EU trade policy, aimed at addressing the CO2 emissions associated with the production of certain imported goods. In this article, we explore the core principles of CBAM, its impact on importers and customs declarants, and the future developments businesses should anticipate.

What is the Carbon Border Adjustment Mechanism (CBAM)?

The Carbon Border Adjustment Mechanism (CBAM) is a policy tool designed to offset the carbon emissions of imported goods. The goal of CBAM is to create a level playing field for companies both within and outside the EU, ensuring that foreign producers do not benefit from lower climate costs compared to their European counterparts.

Initially, CBAM targets imports of goods and selected intermediates whose production is carbon-intensive and at significant risk of carbon leakage. The first phase of CBAM applies to cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. These sectors have been chosen due to their high CO2 emissions and the potential impact of carbon leakage.

💡 The Netherlands Emissions Authority (NEa) has compiled a list of all goods codes currently subject to CBAM.

Changes in Import Customs Declarations

Importers of the aforementioned goods play a crucial role in complying with CBAM regulations. From the implementation date, they must adjust their customs declarations by using two new codes:

• Code 1200: For goods subject to CBAM regulations.
• Code 1300: For goods exempt from CBAM regulations.

Incorrectly entering these codes can lead to error messages and rejection of the declaration, which can delay customs processes and incur additional costs.

Transition Period and Reporting Requirements

CBAM is being phased in, with a transition period running until December 31, 2025. During this period, importers are required to submit quarterly reports to the European Commission, detailing the quantities imported and the associated CO2 emissions. Importers are not yet required to purchase certificates during this transition phase but must report accurate emissions data.

Starting in the third quarter of 2024, standard values will no longer be acceptable in reports. This necessitates that importers make reasonable efforts to obtain the actual emission data from their suppliers. Collecting this data can be complex, especially due to often intricate supply chains and varying levels of cooperation from suppliers.

Struggling to collect emission data? Clearly explain what you expect from your producers and ensure proper follow-up if the requested data is not provided. If you are unable to collect the actual emission data but can demonstrate that you have made all reasonable efforts, you may still use standard values. Alternatively, you can submit an incomplete report and request an extended deadline for supplementation.

💡 Evofenedex has prepared template letters to help you reach out to your trading partners and request emission data. You can use this form to send your request to Evofenedex.

Exceptions to CBAM

There are some exceptions for goods that fall under the CBAM regulation but for which no CBAM obligations apply:

• Shipments with a value of less than €150 in CBAM goods.
• Travelers' baggage with a value of less than €150 in CBAM goods.
• Goods from countries and territories such as Iceland, Liechtenstein, Norway, Switzerland, Büsingen, Helgoland, Livigno, Ceuta, and Melilla.
• Goods used or transported for military purposes, provided they are covered under NATO or EU 302 forms.

What’s New with CBAM Starting in 2026?

From January 1, 2026, CBAM will come into full effect. This means that importers will need to be registered as CBAM declarants and purchase CO2 certificates to offset their CO2 emissions. The price of these certificates will be based on the average auction price of EU ETS allowances, expressed in €/ton CO2 emitted.

Importers will be required to declare the emissions embedded in their imports annually and surrender the corresponding number of certificates. If it can be proven that a carbon price has already been paid during the production of the imported goods, this amount can be deducted from the required certificates.

Gateway continues to monitor developments related to CBAM and CO2 certificates. We offer software updates to ensure that your customs processes remain smooth. For more information, feel free to contact Gateway or consult the CBAM website.