The EU's Carbon Border Adjustment Mechanism (CBAM) and revisions to the EU Emission Trading System (ETS) were finalized in May 2023. The CBAM, starting in October 2023, includes a transitional phase requiring only quarterly reporting until December 2025. From 2026, purchasing CBAM certificates will become mandatory. The EU ETS will expand to aviation and maritime sectors and introduce ETS II for transportation and heating fuels. Businesses, both EU and non-EU, need to prepare for these changes and their impact.
The answer is yes. The EU's Carbon Border Adjustment Mechanism (CBAM) entered into effect on October 1, 2023, commencing a transitional phase until the end of 2025. This mechanism, along with revisions to the EU Emission Trading System (ETS), aims to address carbon leakage and reinforce climate action. In this article, we will explore the details of CBAM, its implications for businesses, and how organizations can prepare for these changes.
The EU Carbon Border Adjustment Mechanism (CBAM) is an environmental regulation introduced by the European Union. It aims to prevent carbon leakage and promote global industrial decarbonization. CBAM applies to imports of goods such as electricity, aluminum, iron, steel, cement, fertilizers, and hydrogen. Its primary objective is to level the playing field for European producers by ensuring that imported goods meet the same environmental standards as those produced within the EU.
Alongside CBAM, revisions to the EU Emission Trading System (ETS) have also been implemented. The ETS will expand its scope to include the aviation and maritime sectors, and a new ETS II will be introduced for transportation and heating fuels. These changes reflect the EU's commitment to reducing greenhouse gas emissions across various industries.
The transitional phase of CBAM, lasting from October 2023 to December 2025, imposes specific reporting obligations on EU-based importers of CBAM-covered goods from non-EU countries. During this phase, importers must report embedded emissions without incurring financial liabilities. The reporting focuses on emissions generated during the production of these goods.
Importers will need to adapt to the reporting rules outlined by the European Commission. These rules ensure that embedded emissions are accurately measured and reported. Guidance and IT tools will be provided to support importers and non-EU producers in complying with these requirements.
Starting from 2026, EU-based importers will be required to purchase and surrender CBAM certificates, reflecting the EU ETS allowance prices. These certificates will serve as proof that the imported goods have accounted for their embedded emissions and have met the necessary environmental standards.
The introduction of mandatory certificate purchase aligns with the EU's commitment to carbon pricing and promoting sustainable business practices. It encourages importers to adopt cleaner production methods and invest in decarbonization efforts.
Businesses, both within and outside the EU, need to prepare for the implementation of CBAM and the revisions to the EU Emission Trading System. Here are some steps organizations can take:
Organizations should assess whether their goods fall within the scope of CBAM. This will help determine the reporting and certificate purchase obligations they may have to fulfill.
Implement robust systems to accurately measure and report embedded emissions. This will ensure compliance with reporting obligations during the transitional phase and facilitate the purchase of CBAM certificates in the future.
Assess supply chains to identify potential risks and opportunities associated with CBAM. Consider collaborating with suppliers to adopt cleaner production methods and reduce emissions.
Keep up-to-date with the latest developments in CBAM and ETS revisions. Seek expert guidance to navigate the complexities of these regulatory changes and understand their impact on your business.
The EU's Carbon Border Adjustment Mechanism (CBAM) has been passed, and its transitional phase is now in effect. This mechanism, along with revisions to the EU Emission Trading System (ETS), aims to reinforce climate action and prevent carbon leakage. Businesses, both within and outside the EU, must prepare for these changes by understanding their obligations, establishing emissions reporting mechanisms, evaluating supply chains, and seeking expert guidance. By embracing these changes, organizations can contribute to global climate action and ensure their sustainable growth in the evolving regulatory landscape.
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