An update on CBAM: Reporting actual emission values during the transitional period of CBAM

The legislative proposal for the Carbon Border Adjustment Mechanism ("CBAM") was presented on 14 July 2021 as part of the 'Fit for 55' package, which includes a series of proposals and initiatives to ensure that EU policies are in line with the climate ambitions set by the European Council and the European Parliament. The main objective of CBAM is to mitigate the risk of carbon leakage – i.e. companies relocating manufacturing processes or shifting investments to countries outside the EU with less stringent climate policies, thus undermining the EU's climate ambitions.

CBAM effectively addresses the risk of carbon leakage by requiring businesses importing relevant products to surrender certificates at a cost. The number of certificates to be surrendered depends on factors such as the number of CO₂-eq emissions released during the manufacturing process of the relevant products imported into the EU. As the number of certificates to be surrendered is lower for imported products manufactured using less carbon-intensive production processes, this provides an incentive to decarbonise production processes in countries outside the EU, while at the same time reducing the risk of relocation of EU production processes to countries outside the EU with less stringent climate policies.

The relevant products covered by CBAM include a range of basic materials, semi-finished products and a limited number of finished products in the following product categories: Iron and steel, cement, fertiliser, aluminium, electricity, and hydrogen. Although the CBAM currently covers only a limited number of product categories, the European Commission ("Commission") has announced that the scope of CBAM will be progressively extended to all sectors covered by the EU ETS by 2030, and the scope of CBAM is expected to be further extended to organic polymers and plastics in the near future. As only specific products, identified by their Combined Nomenclature ("CN") code, are covered by CBAM, it is becoming increasingly important for declarants to correctly classify products imported into the EU.

Obligations under CBAM are triggered when the relevant products are imported into the EU customs territory. However, products originating in certain countries and territories fall outside the scope of CBAM, such as EFTA countries, where the production of CBAM products is covered by the EU Emissions Trading System ("EU ETS") or an equivalent cap-and-trade system. It is therefore becoming increasingly important to correctly determine the country of origin of relevant products subject to CBAM, even in cases where no import duties apply.

As the concept of importation into the EU customs territory under CBAM is aligned with the customs procedure "release for free circulation" of the Union Customs Code ("UCC") laid down in Regulation (EU) 952/2013, placing products under a customs suspension procedure (e.g. the inward processing procedure) does not directly result in an obligation to comply with the obligations under CBAM. This protects industrial activity in the EU and limits the impact on global trade for products that do not enter the EU economic network.

From 1 January 2026, importers must qualify as authorised CBAM declarant in order to import products covered by the CBAM Regulation. However, importers may instead appoint an indirect customs representative. In cases where the importer is not established in the EU customs territory, importers must appoint an indirect customs representative with the status of authorised CBAM declarant.

In addition, from 1 January 2026, authorised CBAM declarants will be required to submit an annual CBAM declaration containing details on the following information:

• The total quantity of each type of product covered by CBAM imported in the previous calendar year.
• The total embedded emissions of these products, expressed in CO₂-eq emissions.
• The total number of CBAM certificates to be surrendered, corresponding to the total embedded emissions to be accounted for.
• Copies of verification reports issued by accredited third party verifiers confirming the total embedded emissions.

The CBAM declaration must be submitted by 31 May of the following year. The first CBAM declaration should therefore be submitted by 31 May 2027 for products imported in 2026. In the meantime, however, the transitional period applies.

Transitional period of CBAM

During the transitional period of CBAM, which started on 1 October 2023, the Commission aims to ensure a smooth introduction of the reporting obligations to reduce the risk of disruptive effects on trade, while collecting the necessary information to further specify the definitive methodology for the rules on the calculation of the actual embedded emissions. During this period, the CBAM Regulation is not in full force and the obligations for traders differ from those outlined above.

The person responsible for complying with the reporting obligations during the transitional period of CBAM, which is either the importer or the indirect customs representative, is defined as the reporting declarant. Until the end of the transitional period of CBAM (31 December 2025), reporting declarants are required to submit a quarterly CBAM report for CBAM products imported during the respective quarter. The CBAM report must be submitted before the end of the following month.

The CBAM report should contain details on the following information:

• The total quantity of products in scope of CBAM imported during the reporting quarter.
• Information on embedded direct and indirect emissions of these products.
• Where applicable, the carbon price due in the country of origin.

If the CBAM report is not submitted or is submitted incorrectly or incompletely and the reporting declarant hasn't taken the necessary steps to correct or comply with the reporting obligation, EU Member States may impose a penalty on the reporting declarant. The amount of the penalty may range from broadly EUR 10 to EUR 50 per tonne of unreported emissions, depending on relevant factors such as the extent of the unreported information and the degree of negligence of the reporting declarant.

Reporting of actual embedded emissions

At the beginning of the transitional period between 1 October 2023 and 30 June 2024, reporting declarants were allowed to rely on default emission values published by the Commission to report the embedded emissions in the CBAM report. However, for imports from 1 July 2024, reporting declarants are required to monitor and report actual emissions released during the production process for each CBAM product imported into the EU.

Recognising the difficulties this may bring, the Commission recently issued non-binding guidance on how to deal with situations where businesses are unable to report actual emissions, e.g., in case of non-cooperating suppliers. Above all, the Commission stresses, reporting declarants should undertake all possible efforts to obtain actual emissions data from their suppliers or from the producers of relevant CBAM products. However, if, despite making all reasonable efforts, reporting declarants remain unable to obtain data on actual emissions, they should indicate this in the CBAM report and provide a justification, including supporting documentation attesting unsuccessful efforts and steps taken to obtain data from their suppliers (or the producers) of relevant CBAM products.

The Commission acknowledges that the definitive assessment of the accuracy of the CBAM reports rests with the national competent authorities ("NCA's"). For example, the Commission clarifies that NCA's may, when assessing the reasonable efforts undertaken by reporting declarants, take into account circumstances such as the means and resources reporting declarants have effectively allocated to unsuccessful efforts to collect the data, including assessing the adequacy of those means and resources in relation to the economic size of the reporting declarant and the total amount of imports of CBAM goods and their embedded emissions. Furthermore, NCA’s may take into account the repetition of these actions and follow-ups with third country producers or suppliers, the time period concerned and their duration.

At the same time, NCA’s are expressing their own views on the reporting of actual emissions, including in our home markets the Netherlands, Belgium and/or Luxembourg. The implications whereof should be examined on a case-by-case basis.

Further information

With the deadline of the CBAM report where actual emissions have to be reported rapidly approaching (31 October 2024), it is recommended to act in time. Our team of international and multidisciplinary professionals, with experience in CBAM, customs law and international trade are of course happy to help. 

More information and how Loyens & Loeff can help you prepare to comply with the reporting obligations during the transitional period of CBAM can be found here.