EU Takes a Step Closer to CBAM, Adopts Rules Governing Carbon Tariff Measure

The transitional phase of CBAM will run until the end of 2025


The European Union has taken one more step towards implementing the Carbon Border Adjustment Mechanism (CBAM), with the European Commission adopting the rules governing the implementation of the carbon tariff on imported goods.

The transitional phase of CBAM, which starts on October 1 this year, will be in force until the end of 2025.

The carbon tariff measure has governments outside the EU and exporters of goods from those countries worried because they fear the competitiveness of their products will be dented. They have accused the bloc of being protectionist. India and China earlier this year raised concerns about CBAM at the World Trade Organization.

The EU describes CBAM as a landmark tool to fight carbon leakage. According to it, carbon leakage occurs when companies based in the EU move carbon-intensive production abroad to take advantage of lower standards or when EU products are replaced by more carbon-intensive imports, undermining the bloc’s climate action.

In CBAM’s transitional phase, the tariff measure will apply only to imported products and commodities like cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen.

The EU rules detail the reporting obligations for importers of CBAM goods and the methodology to calculate embedded emissions released during the manufacture of goods.

In the transitional phase, EU traders will only have to report on the emissions embedded in their imports without making any financial adjustments. The transitional phase will allow time for businesses to prepare for the mechanism and also for the definitive methodology to be fine-tuned by 2026.

The rules specify the specific embedded direct emissions of the goods, which will be determined by converting the attributed direct emissions of the production processes into emissions specific to the goods expressed as CO2e per ton.

The specific embedded emissions of goods produced in an installation can be determined using a carbon pricing mechanism where the installation is located or an emission monitoring system which can include verification by an accredited verifier.

Importers will also have to declare the electricity consumption, expressed in megawatt hours, of the production process per ton of goods produced for embedded indirect emissions associated with the products.

EU importers will have to collect fourth-quarter data as of 1 October 2023, and their first report must be submitted by January 31, 2024.

The rules provide for setting up a CBAM Transitional Registry, a system for filing and managing CBAM reports for reporting declarants.

India has said it would try convincing the EU to honor its carbon certificates to be issued after the Carbon Credit Trading Scheme comes into force. The government had sought feedback from stakeholders on the draft carbon credit trading program.