CBAM reporting obligation from 01 October 2023: European Commission publishes requirements for report content and methodology for CO2 emissions calculation

From 1 October 2023, importers of CO2-intensive goods will be required to submit a quarterly report to the European Commission on the CO2 emissions caused by the production of the imported goods. Companies will have to submit their first report by 31 January 2024 at the latest.

Against this background, the European Commission has defined the relevant content and methodology of the Carbon Border Adjustment Mechanism (CBAM) in an implementing regulation published on 15 September 2023. If companies import goods such as iron, steel or cement from non-EU countries, they must comply with the Commission's now more precise requirements. Failure to do so could result in heavy fines.

What is the CBAM?

The CBAM (Regulation [EU] No. 2023/956 - VO 2023/956) provides for the participation of certain goods from CO2-intensive production in the EU Emissions Trading Scheme. For this purpose, importers of such goods have to purchase certificates, so-called CBAM certificates. The price of these certificates is based on the price of EU ETS certificates. If companies import goods covered by the CBAM, they must surrender the certificates they have purchased. The aim is to create a level playing field for European and foreign producers of CO2-intensive raw materials and to prevent the relocation of production to third countries.

Initially, the CBAM will only apply to imports of goods and intermediate products whose production is particularly carbon-intensive and where the risk of carbon leakage is greatest. These include cement, iron, steel, aluminium, fertilisers and hydrogen.

It is true that the CBAM will apply from 1 October 2023. However, the obligations under the CBAM will only become binding gradually. Between 1 October 2023 and 31 December 2025, there will be a transition period. During this period, companies will only be subject to a reporting obligation. If a company imports goods that fall under the scope of the CBAM, it must report on the CO2 emissions caused by the production of these goods (the so-called CBAM report). Importers must submit their quarterly report to the European Commission no later than one month after the end of the quarter. Beyond this reporting obligation, companies are not required to purchase allowances during the transitional period.

What is new?

With the Implementing Regulation of 15 September 2023 (Implementing Regulation (EU) No 2023/1773 - Regulation 2023/1773), the European Commission has now specified the content and methodological requirements for CBAM reports:

• Regulation 2023/1773 specifies the information that importers must include in their CBAM reports. This includes information on the country of origin of the imported goods, the factory where the goods were produced and the production methods used. The information required is differentiated according to the different products covered by the CBAM. The content of the CBAM report is set out in Annex I to Regulation 2023/1773.
• Regulation 2023/1773 also specifies the calculation method on which the CBAM reports are based. It allows the importer to calculate emissions either on the basis of material flows using activity data from measurement systems and calculation factors from laboratory analyses, or using default values. Alternatively, the importer may calculate the emissions on the basis of an emission source by continuously measuring the concentration of the relevant greenhouse gases in the waste gas stream and the waste gas stream itself. However, other calculation methods are also allowed on a transitional basis. Annex III to Regulation 2023/1773 contains more detailed requirements for the calculation method.
• If an importer fails to submit a CBAM report, or if the report submitted is incorrect or incomplete, Member States shall impose fines on the importer. Under Regulation 2023/1773, the fine is between EUR 10 and EUR 50 per tonne of unreported emissions. In addition, Regulation 2023/1773 sets out criteria that Member State authorities must take into account when assessing the fine. These include the existence of a compliance system to prevent infringements and whether the importer acted intentionally or negligently.

What to do now?

• If not already done, importers of goods from CO2-intensive production should check whether the CBAM applies to the imported goods. The goods covered by the CBAM are listed in Annex I of Regulation 2023/956. A detailed check is recommended as some of the goods are specified down to individual technical specifications.

• From 1 October 2023, importers of goods covered by the CBAM will have to collect data on the CO2 emissions generated during their production. In doing so, importers must comply with the extensive requirements of Regulation 2023/1773, both in terms of the scope of the information to be collected and the correct calculation method.

• Companies must submit a first report to the Commission by 31 January 2024. It is mandatory that they follow the structure in Annex I of Regulation 2023/1773.

• Importers should systematically document the CO2 emissions resulting from the production of imported goods covered by the CBAM. They should also take appropriate precautions to prevent breaches of the reporting obligation. This may include clearly defined responsibilities and predefined information chains in relation to supplier factories. An appropriate compliance system can reduce fines in the event of non-compliance.

The EU Commission is currently developing specific IT tools to assist importers in making and reporting their calculations. Importers should monitor this development in order to adapt their own IT systems where necessary.

From 1 January 2026, companies will be required to obtain CBAM certificates in addition to their reporting obligations. The Commission has announced that it will evaluate the experience gained during the transitional period and adapt the system if necessary. In this respect, importers should keep a close eye on future legislative developments in this area.

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