EU Carbon Border Adjustment Mechanism (CBAM) - Overview and Reporting Requirements

This article will provide an overview of what the CBAM is, who is required to comply with it, and what importers must do during the transitional and definite periods.
The EU has committed to climate change mitigation targets of a 55% net reduction Greenhouse Gas (GHG) emissions by 2030, in comparison to 1990 levels, and to be climate neutral by 2050. In order to ensure alignment with these objectives, the EU has created the Fit for 55 framework - a comprehensive selection of climate policies. One such policy is the EU Carbon Border Adjustment Mechanism (CBAM), currently in the process of being phased in.
This article will provide an overview of what the CBAM is, who is required to comply with it, and what importers must do during the transitional and definite periods.
What is the CBAM?
The Carbon Border Adjustment Mechanism (CBAM) is a price on carbon emissions from the production of certain carbon-intensive imports, complementary to the EU Emissions Trading Scheme (EU-ETS). Importers will be required to register for the scheme, report the emissions of their products and purchase certificates which can then be used to pay for the embedded emissions of their imports. Carbon payments already paid outside of the EU will be deducted from the CBAM payment to avoid double payments and ensure equal carbon pricing across all equivalent products.
What is the Purpose of the CBAM?
Having established ambitious climate targets, the CBAM has been introduced by the EU to avoid carbon leakage, which would hinder efforts to reduce global emissions. In this case, carbon leakage would occur when carbon intensive industries and production processes are relocated outside of the EU or EU products are replaced with overseas products in order to be subject to fewer carbon emissions regulations.
The CBAM also works to create equal pricing for products originating from both inside and outside of the EU, and to encourage the adoption of green production options and decarbonisation outside of the EU.
What are the CBAM Timeframes?
- Transitional Phase: 1st October 2023 - 31st December 2025
- 1st report due: 31st January 2024
- Stricter regulations for reporting: after 30th June 2024 and 31st December 2024
- Definite Regime: from 1st January 2026
Who is Required to Comply?
Any importer of goods included in the CBAM regulations must comply. Once the definite period starts, only authorised declarants (registered to and complying with the CBAM) will be permitted to import CBAM products.
Goods currently required to be reported under the CBAM are:
- Cement
- Iron and Steel
- Aluminium
- Fertilizers
- Hydrogen
- Electricity
There will be a full review of the products at the end of the transitionary period, with possible expansion to other EU-ETS products for the start of 2026. The programme aims to include all sectors of the ETS by 2030.
There are exceptions to this policy for imports of products from countries outside of the EU who are either participants of the ETS or use an EU-linked emissions trading system, such the EEA and Switzerland. This is because they already have a cost of carbon equal to that in the EU. Despite the existence of a UK-ETS, imports from the UK are required to be reported.
What Must Eligible Companies do to Comply?
During the Transitional Phase
This is a pilot phase of the programme designed to create the information needed to finalise the definite regime, and to enable companies to develop their communication with suppliers and data collection processes before the full programme begins. During this phase there are no certificates to be purchased, instead it focuses solely on reporting. Reports are required for every quarter, due one month after it finishes.
A delay request is possible, giving an extra 30 days in the case of technical difficulties. Reports can be edited for two months after the end of the quarter, with the first two reports having a longer edit period lasting until the 31st July 2024. There are non-compliance penalties which will cost importers €10-50 per tonne of emissions that is not reported, with further penalties for missing or incomplete reports if steps are not taken to rectify the issues.
Reports must include:
- Quantity of imports of each CBAM product by country of origin and production site.
- Direct embedded emissions – For most products only CO₂ needs to be reported. Certain fertilisers must also report N₂O and certain aluminium products must report PFCs.
- Indirect emissions for all products except for electricity.
- Carbon price which has already been paid in a third country plus any available compensation to account for this.
Required data collection methodology:
There are currently three permitted methods of reporting, although these are being phased out this year to leave only the official EU method from January 2025.
- The EU method: either using emissions factors and the amount of fuel and material used to calculate total emissions, or measuring GHG concentrations and flue gas flows from emissions sources.
- Using equivalent methods, such as those from the country of production – permitted until 31st December 2024.
- Using default reference values published by the EU commission – permitted until 30th June 2024.
From 2025 onwards, estimations and default values are permitted if required, for example, if a supplier is unable to provide the relevant information. However, these are severely discouraged and when used must be on less than 20% of total embedded emissions. All estimations and use of default data must be supported by an explanation why they have been used. Communications templates are available for importers to give to suppliers to help them collect all the relevant information.
During the Definite Regime
All importers will need to be registered and authorised as CBAM declarants to import CBAM goods. CBAM certificates will be sold matching the ETS weekly auction price in €/tonne CO₂. Each year importers must declare their imports of CBAM goods in an annual report, released on 31st May the following year, and surrender the certificates representing the amount of embedded emissions in their imported products.
If carbon pricing has previously been paid to a different country for the product, the number of certificates the EU importer is required to pay will be reduced accordingly to prevent double payments. During the phase out of the ETS free allowances, ending in 2034, certificates will only be needed for the remaining proportion of emissions not covered by the allowances.
The regulations for the definite regime have yet to be finalised and will be reviewed at the end of the transitionary phase. Topics for review include: the number of products requiring indirect emissions reporting, potentially removing this requirement for iron, steel, aluminum and hydrogen; and the expansion of products included in the CBAM requirements.
How NUS can Help
NUS have energy sector expertise across the EU and a dedicated Energy and Sustainability Services (ESS) Team who can support importers of CBAM goods in understanding what this means for their business and what they will need to do to ensure compliance. For more information contact us online or find your local NUS office.
