What is the CBAM?

On 17 May 2023, Regulation (EU) 2023/956 establishing a carbon border adjustment mechanism (CBAM) entered into force. With this regulation, the EU is implementing an essential measure from the “Green Deal”, which is intended to contribute to the EU becoming climate neutral by 2050 at the latest. On the basis of Article 192 (2) TFEU, the CBAM Regulation is directly applicable in all Member States.

With this border adjustment mechanism, the EU wants to prevent the relocation of CO₂ emissions to third countries. Companies should not relocate their production to countries where climate protection measures are less ambitious or where they import more CO₂-intensive products. To this end, producers in the EU covered by the EU ETS and importers of goods from third countries will gradually be put on an equal footing.

For this purpose, the EU Commission has presented an implementing regulation for the transitional phase beginning on 1 October 2023, and ending at the end of 2025. This contains reporting obligations for EU importers of CBAM goods as well as a calculation method to be applied for the greenhouse gases caused during their production. Initially, importers will only have to report during a transitional period and will not yet have to buy CO₂ allowances.

On 17 August 2023, the EU Commission published guidelines on CBAM Regulation (EU) 2023/596. These guidelines are intended to help companies comply with the reporting obligations during the transition period, which starts on 1 October 2023. The guidelines include information for importers of goods into the EU as well as for plant operators outside the EU.  

The CBAM is intended to work in step with the reformed EU Emissions Trading Directive. This provides for a gradual reduction in the quantity of CO₂ allowances in the ETS-1 by 62 per cent by 2030 compared to 2005 and stricter rules for the free allocation of allowances.
 

Who is affected?

The CBAM concerns imports of certain goods into the EU. The CO₂ border adjustment system covers carbon dioxide, nitrous oxide and perfluorocarbons (PFCs) for the product groups cement, electricity, fertilisers (including upstream products such as ammonia and potassium nitrate), iron, steel and aluminium (including downstream products) and hydrogen. This is to counter the risk of carbon leakage if “different levels of ambition remain globally” while the EU accelerates its reduction targets.

The EU Commission will use the transition period to evaluate to which further sectors the CBAM mechanism can be extended. It can be assumed that the current CBAM regulation is only the beginning of a comprehensive greenhouse gas regulation.

What to do?

In 2023/2024

The importers concerned will be subject to extensive data collection and reporting obligations during a transitional period until 31 December 2025. Importers are required to collect data for the fourth quarter of 2023 as early as 1 October 2023 and to submit their first report by 31 January 2024. Violations of these obligations will be penalised from the outset.

From 2025

From 1 January 2025, the companies concerned will have to register as “CBAM registrants” with their national authority (in Germany, this is the Federal Environment Agency). This authority will approach the companies subject to registration and request registration.

From 2026

From 1 January 2026, the CBAM will enter a further phase. Companies will then have to purchase CBAM allowances for an amount corresponding to the greenhouse gas emissions of the imported goods. The price of the allowances will be linked to the price of EU ETS allowances.

Our consulting services

“CBAM-CHECK” (import perspective)

• Internal workshops for affected companies - education mainly on compliance and settlement as well as awareness, also as a workshop series (“Regulation in Progress”)
• Creation of checklists for companies, according to the timetable for the CBAM phases and the different authorities’ responsibilities.
• Advice on the legally compliant implementation of the CBAM requirements, also taking into account the legal attacks on the CBAM Regulation
• Support for reporting in the transition phase (first report by 31 January 2024, last report by 31 January 2026)
• Advice on customs tariff law
• Advice on dealing with the future unified CBAM database
• Advising on international issues in EU-wide groups of companies
• Support for CBAM registration from 1 January 2025 (EU-wide)
• Include processes and supply chains and ensure that imported goods can continue to enter the EU from 2026 onwards
• Support in optimising purchasing contracts and international supply chains, advice on structuring options
• Ongoing information on the further development of the CBAM legal framework and current practice of the EU Commission and authorities - regular update calls
• Operational implementation of notifications/reporting for companies
• Advising EU companies on details of the so-called “inward processing”, customs law advice in the area of intersection with the CBAM
• Advice on CBAM impacts on electricity imports from third countries (e.g. PPA with UK)
• Advice for EU-based importers on CBAM exemptions regarding third countries implementing CBAM-like systems
• Advice on legal remedies against imposed penalties and support in official and judicial proceedings, including test cases
• Support in determining the methodology for the carbon footprint of the imported goods (e.g. a tonne of steel or screw)
• Identify KPIs related to the carbon footprint, including process optimisation
• Identification of optimisation and cost-saving potential based on CBAM data (e.g. optimisation of freight costs) 

“CBAM-FIT” (manufacturer perspective)

• Identification of manufacturing plants in third countries and advice on energy use in the production of goods in third countries (with international comparative values on the basis of our database, which is currently being set up)
• Use of a supplier database on emission levels from listed manufacturers from third countries importing goods into the EU, support for purchasing
• Advising companies exporting to the EU in the country of production (training exporters on CBAM, on PCF, prices etc.)