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The Cross-Border Carbon Adjustment Mechanism (CBAM) is a key initiative of the European Union aimed at reducing greenhouse gas emissions and encouraging greener production both within and outside the EU. CBAM currently operates in a transitional phase and will become fully functional in 2026. This system is designed to balance carbon-related costs for products both inside and outside the EU through carbon certificates, based on the carbon intensity of the goods and taxes paid in the producer’s country.
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For instance, an aluminum producer exports 10,000 tons of aluminum to the EU in 2026:
Carbon emissions per ton of aluminum constitute 5 tons CO2e.
For 10,000 tons of aluminum, total emissions equal 50,000 tons CO2e.
One CBAM certificate equals one ton of CO2e.
Therefore, the aluminium producer needs 50,000 CBAM certificates to cover emissions.
The price of CBAM certificates depends on the weekly average auction price of EU ETS (Emissions Trading System) allowances, represented in euros per ton of CO2e. It also factors in:
The number of free allowances within the EU for similar products.
Carbon taxes paid in the exporting country.
For example:
In the EU,a free quota for aluminum covers 4 tons of CO2e per ton.
The importer covers 40,000 tons of CO2e with free allowances (4 tons CO2e x 10,000 tons of aluminum).
The importer must pay for 10,000 CBAM certificates (50,000 – 40,000).
If the carbon price is 100 euros, and no carbon taxes were paid in the exporter’s country, the importer must pay for 10,000 certificates totaling 1,000,000 euros.
Transition period until December 31, 2025: Declarants must submit a quarterly report (“CBAM report”) detailing imported goods for that quarter.
Main application period starting January 1, 2026: Importers must register as authorized declarants and begin purchasing CBAM certificates for imported CO2e emissions. Embedded emissions must be calculated in the annual CBAM declaration, including a verified calculation of the carbon footprint.
For the main CBAM period, by May 31 each year, importers must:
Submit annual reports on carbon emissions related to imported goods for the previous year (Article 6).
Provide data on purchased CBAM certificates corresponding to emissions (Article 22).
If there is a discrepancy between the certificates and emissions, or if the declaration is not submitted, penalties will be imposed (Article 26).
Information on payments is discussed by the European Commission and the CBAM project, with rules subject to changes as CBAM details are finalized.
Initially, simplified rules allowed default values for embedded emissions. However, from Q3 2024, obligations become stricter. Under Article 5 of the Implementing Regulation, default values may be used for up to 20% of the total volume of CBAM goods.
Verification becomes mandatory during the main CBAM period. The first annual declaration for 2026 must be submitted by May 31, 2027. Specific deadlines and procedures will be clarified as the main CBAM stage approaches.
Regulation (EU) 2023/956 of the European Parliament and the Council of May 10, 2023, establishing CBAM mechanism.
Implementing Regulation (EU) 2023/1773 of August 17, 2023, setting rules for reporting obligations in the transition period.
CBAM is a significant step in the global fight against climate change, impacting industries and companies involved in the production and export of goods to the EU. If your company requires professional support on CBAM matters or wants to better understand certification and reporting nuances, our team is ready to help. Fill out the form below, and we will contact you.
Author: Marina Kupriyanova
Published: 19.09.2024
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