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International Trade – Carbon Border Adjustment Mechanism (CBAM)
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Do you import aluminium, steel, iron, fertilizers, electrical energy, hydrogen or cement into the EU? Are the goods produced outside the EU?
Imports into the EU are now subject to the new Carbon Border Adjustment Mechanism (CBAM), with penalties (fines) for non-compliance.
But what is the CBAM, how will it work, and what should you do to prepare? Here’s what businesses need to know.
What is the CBAM regulation?
The CBAM is a new carbon regulation — a type of carbon pricing — to help the EU fight climate change. While the existing EU Emissions Trading System (ETS) covers EU countries, the CBAM will apply to goods produced outside the EU (except Iceland, Norway, Liechtenstein and Switzerland).
This addresses the problem of carbon leakage; that is, the situation where companies move the production of goods to countries with less stringent emissions policies, primarily to save costs associated with carbon pricing. Unlike the ETS’s ‘cap-and-trade’ system, the CBAM (at least in its initial form) won’t set caps on imports or emissions, and there will be no trading of carbon permits.
In May 2023, the EU CBAM officially came into force. The transitional phase started on 1 October 2023 and ends on 1 January 2026. During the transitional period, emissions reporting is required without ‘financial adjustment’. The permanent CBAM system will begin on 1 January 2026, when financial adjustment will be required via purchasing certificates. Free allowances for sectors covered by the EU ETS will end by 2034 (phased out from 2026). Until then, the CBAM will apply only to the proportion of emissions that does not benefit from free allowances under the EU ETS, in order to fully respect the World Trade Organisation’s rules.
During the transitional phase, the EU importer or indirect customs representative must submit a CBAM report on a quarterly basis (at the end of the month following each quarter) starting with 31 January 2024 for the first report covering Q4 2023. Breaking news (30 January 2024): CBAM declarants can request 1-month extension
The United Kingdom will introduce similar legislation from 2027.
Our webinar today will discuss how this affects you as an exporter/importer and what steps you will need to take to comply with these new regulations.
We anticipate this webinar will lead to further in dept training based on feedback from the event and consultancy services will be available.