EU Implements Regulations Mandating Emissions Reporting for Import Carbon Tax
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Yesterday, The European Commission adopted a detailed set of reporting regulations for the transitional phase of the Carbon Border Adjustment Mechanism (CBAM). Set to begin on October 1, 2023 and extend through the year 2025, this transitional phase aims to lay the groundwork for the CBAM's full implementation.
What is CBAM?
The EU’s Carbon Border Adjustment Mechanism (CBAM) aims to fairly price carbon emissions associated with the production of carbon-intensive goods imported into the EU. Alongside tracking the carbon emissions, CBAM is also encouraging cleaner practices from other non-EU nations. The hope is to combat carbon leakage, which happens when companies based in the EU move carbon-intensive production to other countries that don’t have as strict of policies. Lastly, the introduction of CBAM aligns with the gradual phase-out of free carbon emission allowances granted under the EU Emissions Trading System (ETS).
Understanding the new regulation
As part of CBAM, these newly established rules, as outlined in the Implementing Regulation, define the obligations of EU importers of CBAM goods. These regulations are specific to this transitional period and outline a specific methodology for calculating embedded emissions originating from the production process of these goods.
What is required?
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During this transitional phase, traders are required to report exclusively on the emissions embedded within their imported goods, and no financial adjustment is required during this period. This approach is a way to facilitate a smoother preparation process for businesses. This is partnered with an allowance for necessary refinements to the definitive methodology, which is expected to be fully established by 2026.
To offer guidance and support to both EU importers and non-EU installations, the European Commission has also released implementation guidance in the form of training materials, tutorials, and webinars. This initiative and support are designed to ensure clarity and ease of adherence to the new rules. IT tools are also being developed to assist importers in carrying out and reporting the required emissions calculations. While importers are expected to begin data collection for the fourth quarter starting October 1, 2023, their initial report submission deadline is set for January 31, 2024.
The adoption of the Implementing Regulation follows a public consultation period and subsequent approval by the CBAM Committee, which is composed of representatives from various EU Member States. CBAM is seen as an essential part of the EU's ambitious Fit for 55 Agenda. As formerly mentioned, this tool seeks to combat carbon leakage which undermines the region's climate efforts. Ultimately, CBAM is integral in maintaining the EU's climate goals and reinforcing its commitment to sustainability.
