On 13 June 2023, the European Commission published a draft Implementing Regulation outlining detailed rules for reporting obligations during the transitional period of the EU Carbon Border Adjustment Mechanism (CBAM), which runs from 1 October 2023 to 31 December 2025.1 This regulation applies to various goods covered by the EU CBAM, including cement, electricity, fertilizers, iron and steel, aluminium, and chemicals.
During the transitional period, reporting declarants are required to submit a CBAM report within one month after the end of each quarter. The first CBAM report is due by 31 January 2024 (for imports in Q4 2023), and the final CBAM report is due by 31 January 2026 (for imports in Q4 2025).
There are three categories of reporting declarants:
- Importer who lodges a customs declaration. This refers to the importer who submits a customs declaration for the release of goods in its own name and on its own behalf.
- Importer who declares the importation of goods. This category includes importers who hold an authorization to lodge a customs declaration, as referred to in Article 182(1) of Regulation No 952/2013 (the Union Customs Code), and declare the importation of goods.
- Indirect customs representative. When the importer is established outside the European Union or when the indirect customs representative agrees to fulfill the reporting obligations, the indirect customs representative may lodge a customs declaration and carry out the reporting obligations.
Modification and Correction of CBAM Reports
Reporting declarants have the opportunity to modify or correct CBAM reports under the following circumstances:
- General Rule: Modifications or corrections can be made within two months of the relevant reporting quarter.
- Derogation: The first two CBAM reports may be modified until the submission deadline for the third CBAM report (i.e., 31 July 2024).
- Authority Approval: If a CBAM report is incorrect or incomplete, and upon request of the reporting declarant, modifications or corrections can be made within one month after the approval of the request by the competent authority or the European Commission.
Mandatory and Optional Content of CBAM Reports
The CBAM report must include the following information:
1. Imported Goods:
- Quantity (in MW/h for electricity and in tonnes for other goods)
- Type of imported goods (CN code)
2. Embedded Emissions:
- Country of origin
- Installation data
- Production routes as specified in Annex II of the draft Implementing Regulation
- Descriptive parameters affecting embedded emissions
- Identification number of the mill (for steel goods)
- Direct emissions of the goods (in accordance with Annex III of the draft Implementing Regulation)
3. Indirect Emissions:
- Electricity consumption
- Indication of whether the declarant reports actual emissions or default values
- Corresponding emissions factor
- Amount of specific indirect emissions (in accordance with Annex III of the draft Implementing Regulation)
Reporting declarants may request producers of goods to use an electronic template provided by the European Commission to provide the necessary information for submitting CBAM reports (see Annex IV of the draft Implementing Regulation).
Calculation of Embedded Emissions
Reporting declarants are required to calculate the level of embedded emissions using one of the following methods, based on their choice of monitoring approach.
- Method 1 (Calculation-Based Approach): Determining emissions from source streams based on activity data obtained through measurement systems and additional parameters from laboratory analyses or standard values.
- Method 2 (Measurement-Based Approach): Determining emissions from emission sources through continuous measurement of the concentration of the relevant greenhouse gas in the flue gas and the flue-gas flow.
Regardless of the monitoring approach, the determination of embedded emissions requires the identification of the relevant production processes for each goods category and monitoring both direct and indirect emissions. The draft Implementing Regulation outlines the system boundaries for applicable production processes and specific requirements for each goods category in Annex II.
The following time-limited derogations from the use of the above methods are available.
- Until 31 December 2024: If the operator is subject to a monitoring, reporting, and verification system associated with a mandatory pricing scheme, an emission reduction project, or a compulsory emission monitoring scheme, methods used under monitoring, reporting, and verification systems (MRV) or other applicable monitoring rules (such as a carbon pricing scheme, an emission monitoring scheme, or a compulsory emission monitoring scheme) are allowed, provided they ensure similar coverage and accuracy as the first two methods.
- Until 31 July 2024: For imports of goods where the reporting declarant lacks necessary information, any other method may be used, indicating the methodology followed.
(Limited) Use of Default Values
Reporting declarants can utilize default values for input materials or subprocesses contributing to less than 20% of the total emissions of complex goods.
Reporting of Information Regarding Carbon Price
Regarding goods subject to a carbon price in the country of origin, reporting declarants must include the following information in the CBAM report:
- Form of carbon price
- Country of origin
- Any rebate or compensation available in the country that could result in a reduction of the carbon price
- Indication of a legal act providing for the carbon price, rebate, or relevant compensation (including a copy of the provision)
- Type of product indicated by CN code
- Quantity of embedded emissions covered by the carbon price
- Quantity of embedded emissions covered by any rebate or compensation, including free allocations if applicable
- Monetary amount
Assessment of CBAM Reports
The European Commission may review CBAM reports to assess compliance with reporting obligations. If a CBAM report is deemed incomplete or incorrect, the European Commission will provide an indicative assessment to the competent authority in the member state where the reporting declarant is established. Competent authorities will then review and assess the CBAM reports based on the information provided by the European Commission. Correction procedures may be initiated for incomplete or incorrect CBAM reports, as well as for the failure to submit a CBAM report.
Enforcement and Penalties
Penalties for non-compliance with reporting obligations during the transitional period range from €10 to €50 per tonne of unreported embedded emissions. Competent authorities will determine the precise penalty amount, considering factors such as the extent of unreported information, unreported quantities of goods and emissions, intentional or negligent behavior, level of cooperation, and duration of the failure to report.
CBAM Transitional Registry
To ensure effective implementation of reporting obligations, the draft Implementing Regulation includes provisions for the establishment and operation of the CBAM Transitional Registry. Reporting declarants will utilize the CBAM Transitional Registry, accessible through a Trader Portal, to submit their CBAM reports. The European Commission, competent authorities, and customs authorities will have access to the CBAM Transitional Registry via a CBAM Competent Authorities Portal.
A public consultation has been launched on the draft Implementing Regulation and stakeholders can provide feedback until 11 July 2023 via the European Commission's website.2 Thereafter, the EU member states will vote on its adoption in the newly established CBAM Committee. Once adopted, the Implementing Regulation will enter into force the day following that of its publication in the Official Journal of the European Union.
Mayer Brown has a wealth of experience in advising not just on emissions trading but also on the policy and regulatory aspects of the EU ETS. This, together with our leading trade practice, positions us well to advise on the intricacies of the proposed CBAM.
1 The draft Implementing Regulation can be found at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=PI_COM%3AAres%282023%294079551&qid=1686656173256.