The European Union (EU) is currently making significant moves targeted at achieving improved sustainability, a higher level of environmental protection, and a thriving economy. The Carbon Border Adjustment Mechanism (CBAM) is one of the major plans included in the European Green Deal (EGD), which is projected to help achieve a carbon-neutral EU by 2050. Here is everything you need to know about the CBAM plan in the EU and what it means for every region.
What Does the Carbon Border Adjustment Mechanism (CBAM) in the EU Entail?
The CBAM is an integral part of the European Green Deal, and it was introduced with the objective of reducing carbon emissions and bringing a significant reduction to the carbon released during the production of the carbon-intensive goods that find their way to Europe. It is also aimed at encouraging cleaner industrial production by adopting the methodology for calculating emissions referencing the Paris Agreement and the EU Fit for 55 Package.
It is safe to say the CBAM plan also focuses largely on the carbon-intensive goods produced in non-EU countries. This approach is projected to help the EU ensure that the overall carbon price of goods imported is on the same level with the carbon price of domestic production without flouting the WTO rules.
The CBAM approach is expected to come in full force from the year 2026, with 2023 to 2025 being the transitional phase that will allow every region and industry to adjust to this shift. The design of the transition phase will also fit the phase-out of the allocation of allowances under the EU Transmission Trade System (ETS) aimed at the decarbonization of EU Industries.
The initial phase of the CBAM enforcement will only target a number of high-risk carbon leakage products, including cement, fertilizers, steel/iron, hydrogen, electricity, and aluminum.
Dual Roles EU Businesses in the Transitional Phase of the CBAM
The transitional phase of the CBAM, scheduled between 2023 and 2025, is expected to be pivotal in achieving remarkable results, with EU businesses expected to play significant roles. During this phase, these businesses are expected to;
-
Submit Quarterly CBAM Report
EU businesses, especially importers of goods or direct customs reps, will be expected to submit a report showing Greenhouse Gas Emissions (GGE) linked to their imports. The report is expected to include direct and indirect carbon emissions on these imported goods. The reports should be submitted quarterly of every calendar year without having to make any adjustments or financial payments. This report will be expected no later than one month after the end of the quarter.
Registration in the CBAM Transitional Registry
The CBAM transitional registry is designed by the EU to help traders create and submit the CBAM quarterly report. The registry will also allow seamless communication between the commission in charge of the CBAM project, traders, national customs authorities, and competent authorities.
Conclusion
The EU is putting several strategies in place to meet the sustainable EGD goals, and CBAM is a crucial part of this process that is expected to yield significant results. The CBAM is expected to meet and address some of the cross-border pressures of carbon emissions and establish fair pricing in a world where commitment to green production largely varies.
