On 15/03/2022 the Council of the EU reached an agreement on the Carbon Border Adjustment Mechanism (CBAM). The European ministers were able to find a common position on a general approach. This is an important step towards the implementation of the ambitious CBAM regulation.
What is CBAM?
CBAM is a mechanism that will target imports of carbon-intensive products. It is one of the key components of the European Union’s ‘Fit for 55’ package. CBAM is meant to complement the EU Emissions Trading System (ETS) and addresses the risk of carbon leakage. The products covered under the CBAM proposal are iron and steel, aluminium, fertilisers, cement and electricity.
The impact of CBAM for business
The proposal provides for a phased introduction of CBAM starting as of 2023. Initially, only reporting obligations will apply, but as of 2026 CBAM should be fully applicable and CBAM certificates will have to be surrendered. This means that under the proposed timeline importers need to be ready by 2023 to be compliant with CBAM. For example, importers will need to report on a quarterly basis the embedded emissions in the production process. Furthermore, importers will need to apply for an authorization and report on the direct and indirect emissions, as well as on the carbon price paid abroad.
Besides additional compliance obligations there will also be a financial impact as from 2026. Importers must surrender CBAM certificates corresponding to the total amount of embedded emissions of the goods imported. The prices of CBAM certificates reflect the average price of the EU ETS allowances closing prices for each calendar week.
Although several elements still need to be reviewed and specified by the European Council, this is an important next step towards the implementation of CBAM. The next legislative step is finding support in the European Parliament.
As the legislative train continues, this is the time to assess whether you are impacted by CBAM and the other green taxation related measures in the Fit for 55 package, and rethink the supply chain where needed.
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