.jpg)
CBAM is the tax levied by the EU on the amount of carbon emitted in the production process when products manufactured in a third country are imported into the EU.
Exemption: Shipments and goods with a value not exceeding EUR 150.
CBAM seeks to prevent “carbon leakage”, which occurs when EU companies relocate carbon-intensive production to non-EU countries and source carbon-intensive products exclusively from non-EU markets.
As a non-EU company, you can be an operator of an installation producing “CBAM goods”. Being so, CBAM can affect you in two ways:
- You may need to provide information to the importer on the embedded emissions of your CBAM goods.
- You may need to provide information to the operator using your goods as precursor for producing other CBAM goods.
Mark your calendar!
1 October 2023 - 31 December 2025: CBAM transitional phase
- At the beginning, it applies to imports of cement, iron and steel, aluminium, fertilisers, electricity and hydrogen - there will be a review to extend its scope to other goods with timetables setting out their inclusion by 2030.
- Reporting of GHG emissions in imports only (direct and indirect emissions), no financial payments or adjustments required yet.
- Flexible requirements and methodology during the transition period to calculate embedded emissions:some text
- Until the end of 2024, companies can choose between: (a) full reporting according to the new methodology (EU methodology); (b) reporting based on an equivalent methodology (three options); and (c) reporting based on default reference values (only until July 2024).
- From 1 January 2025, only the EU methodology will be accepted, estimates (including defaults) can only be used for complex goods if these estimates represent less than 20% of the total embedded emissions.
31 January 2024: First reporting period for importers
From 1 January 2026: CBAM definitive regime
- EU importers register with national authorities for CBAM and purchase CBAM certificates.some text
- Importers will use the CBAM certificates to pay for the price of the emissions that are embedded in the goods that
- Certificate price determined by weekly average auction price of EU Emission Trading System (ETS) allowances (in €/tonne of CO2 emitted).
- Importers declare emissions in imports and surrender corresponding certificates annually.
- Importers can deduct paid carbon price during production of imported goods if proven, to avoid being charged twice for the same emission.
What are embedded emissions?
Embedded emissions refer to the greenhouse gas emissions released during the production of goods, including emissions from materials used in the production process. This concept reflects how emissions would be regulated under the EU ETS if the goods were produced within the EU. Under the EU ETS, operators pay for their direct emissions, but also for the indirect emissions associated with the electricity and input materials they use. These indirect emissions, known as precursors, contribute to the overall CO2 cost of EU ETS installations. Embedded emissions take into account both direct and indirect emissions from the production process, as well as emissions from precursor materials. Calculation differs from other methods such as the GHG Protocol or ISO14067.
How can you prepare to provide embedded emissions data and start developing a monitoring methodology for your installation?
Step 1: Define the boundaries of your installation, the production processes, and routes
This involves outlining the system boundaries needed to attribute emissions to specific goods produced. Each aggregated good category corresponds to a production process.
Step 2: Decide which reporting period you will use.
The default is the European calendar year. However, if your facility operates in a country with a different calendar, or for other valid reasons, you may choose a different period, provided it is at least three months. Suitable alternatives include the reporting periods of a carbon pricing or emissions monitoring scheme in your country, or the fiscal year used. Choosing such periods may improve the quality of the data through additional checks or verification processes.
Step 3: Identify the parameters for monitoring emissions.
These include direct emissions from the installation, which can be measured using calculation-based or measurement-based approaches, although alternative methods are acceptable during the phase-in period. Direct emissions related to heat flows need to be monitored and attributed to production processes, while indirect emissions from electricity consumption require tracking of electricity quantities and emission factors. Precursors, i.e. materials that contribute to embedded emissions, need to be monitored whether they are produced internally or purchased. In addition, specific parameters related to manufactured goods must be collected and communicated to importers.
Step 4: Determine how to monitor each parameter identified.
This includes measuring fuel and material quantities using instruments such as weigh belts or flow meters, or calculating quantities from purchase records. Calculation factors, such as carbon content, may be selected from standard values or determined by laboratory analysis. Procedures for the continuous measurement of emissions, heat flow and electricity shall be established, including the selection and maintenance of instruments. Estimation or indirect methods based on known correlations may be necessary in some cases. As a last resort, if other methods are not available, default values provided by the European Commission for embedded emissions of CBAM products may be used.
