10/5/2023
CBAM Pilot Phase has came into force…
From October 1, 2023, the European Union's Carbon Border Adjustment Mechanism (CBAM) has come into effect, beginning with a transition phase until the end of 2025. During this period, importers in the EU bringing in goods covered by CBAM from non-EU countries must report the embedded emissions of these imports. Importers will not face financial penalties during this phase. Starting from 2026, importers will be required to purchase and surrender CBAM certificates, effectively imposing a carbon price that aligns with the EU Emission Trading System (ETS) allowance price level.
Who is going to be exposed?
CBAM, the world's first policy of its kind, initially applies to imports of electricity, aluminium, iron and steel, cement, fertilizers, and hydrogen. From 2026 onward, a carbon levy will be imposed on these goods imported into the EU, based on the embedded emissions generated during their production. The primary goal of this mechanism is to create a level playing field for European producers who are subject to a carbon price for their emissions under the EU ETS, while also encouraging global industrial decarbonization efforts.
On August 17, 2023, the European Commission took a significant step toward CBAM implementation by adopting an implementing regulation that outlines detailed reporting requirements and methodologies for calculating embedded emissions of covered goods during the transitional phase. This grace period allows businesses enough time to prepare for compliance and allows for the refinement of the definitive CBAM methodology before the carbon levy is enforced.
What do historical background and pilot phase say?
Importers are strongly advised to start collecting data for the fourth quarter of 2023 beginning October 1, with the first report due by January 31, 2024. To assist with reporting, the European Commission has released comprehensive guidance documents for both EU importers and non-EU manufacturers, explaining how to practically implement these new regulations.
Before adoption, the implementing regulation underwent a thorough public consultation process and received approval from the CBAM Committee, comprising representatives from EU Member States. As a vital component of the "Fit for 55" policy package, CBAM serves as the EU's significant tool to combat carbon leakage, gradually replacing the free allocation of allowances over a nine-year period from 2026 to 2034, concurrent with the phased introduction of the CBAM levy.
How can I get ready?
Climate Balanced offers consultancy services to businesses on CBAM readiness, capacity and strategy building.
Contact us to initate your readiness strategy agaisnt CBAM...