The Carbon Border Adjustment Mechanism (CBAM) is a key European Union tool designed to address climate change and pursue climate neutrality by adjusting import prices based on associated CO₂ emissions. CBAM’s main goal is to prevent "carbon leakage"—the relocation of production to countries with less stringent environmental regulations, potentially leading to higher greenhouse gas emissions outside the EU. CBAM imposes new obligations on importers of select goods, such as steel, cement, fertilizers, and energy, requiring them to report emissions related to the production of these items.
Completing CBAM reports can present significant challenges, particularly when precise emissions data from earlier stages in the supply chain is unavailable. In such cases, using theoretical CO₂ emission factors is permissible but may lead to higher fees. Therefore, it becomes essential to obtain accurate information on CO₂ emission sources and factors from suppliers and to prepare adequately for the new regulations to minimize the risk of high costs and support sustainable development.
Transition Period
The CBAM transition period spans from October 1, 2023, to December 31, 2025. During this period, importers and customs representatives are required to submit quarterly reports detailing goods subject to CBAM. These reports must be submitted no later than one month following each quarter’s end, starting with the initial report for goods imported in Q4 2023, due by January 31, 2024.
Throughout the transition period, importers are not required to make payments or financial adjustments. CBAM reporting is conducted through a temporary registry that was launched on October 1, 2023.
Reporting Difficulties
CBAM reporting entails numerous challenges, particularly with the end of the default value usage period in Q2 2024. Up until then, importers could rely on a simplified method requiring only basic information such as production location, producer, and the mass of imported goods. However, after this date, determining the actual emissions level from producers became mandatory. Under new requirements, only 20% of product-embedded emissions can be reported based on default values.
The expanded data requirements entail developing a detailed reporting methodology, imposing additional demands on importers. This methodology must account for comprehensive information, including descriptions of production processes, grouping of goods, emission determination methods for individual processes and facilities, and potential deviations from European Commission-recommended methods. Preparing such a methodology requires close collaboration between importers and producers, often involving a lengthy process, multiple revisions, and challenges in contacting producers, especially when intermediaries are involved in the supply chain.
These challenges necessitate that importers prepare for increased costs and time commitments, as well as the need to establish long-term relationships with producers to meet new reporting requirements. However, securing such data may not always be feasible. What can be done in such cases?
New Reporting Guidelines
Generally, those submitting CBAM reports are required to take all possible actions to obtain actual emissions data from CBAM-covered goods suppliers/producers. However, obtaining such data can be complex and is not always achievable by the report submission deadline. If data cannot be obtained in time, it is required to document the efforts made to collect emissions data from producers/suppliers.
It’s essential to emphasize that these procedures apply when actual emissions data is unavailable at the time of CBAM report submission.
Penalties for Non-Compliance
The European Commission’s Implementing Regulation allows for the review of CBAM declarations and the entities submitting them. Additionally, the European Commission is obligated to notify Member States about entities that fail to meet CBAM reporting obligations or exhibit inaccuracies. Entities subject to CBAM are also monitored by national administrative authorities to ensure compliance with CBAM Regulation requirements. In Poland, this authority is the National Center for Emissions Management (KOBIZE). Failure to submit CBAM declarations may result in penalties as stipulated in the Implementing Regulation, including penalties in the transition period.
Under the Commission Implementing Regulation 2023/1773, non-reporting of greenhouse gas emissions in the CBAM declaration system results in fines from 10 to 50 EUR per ton of emissions, potentially exceeding 50,000 PLN.
These penalties are expected to be indexed for inflation.
If you have any questions regarding CBAM, please feel free to contact us.
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