The EU's Carbon Border Adjustment Mechanism (the "CBAM") reporting obligations started applying from 1 October 2023. The final CBAM Implementing Regulation introduces further insight and key clarifications.
The CBAM Implementing Regulation covering the reporting period was published in the Official Journal on 15 September 2023 and it officially entered into force the following day.1 Reporting obligations began applying from 1 October 2023.2
Are you ready?
In advance of the enactment of the CBAM reporting obligations, companies should assess how they will be impacted by the CBAM and prepare for their compliance obligations:
- Assess which of your products are covered by CBAM reporting obligations.
- Analyse the requirements of the CBAM Regulation and CBAM Implementing Regulation for your covered products. The Implementing Regulation provides goods-specific system boundaries which provide additional guidance on the calculation of embedded emissions.
- Establish an appropriate structure of data flows to feed into the CBAM report.
Our previous client alert, "Four things to know when preparing for EU Carbon Border Adjustment Mechanism reporting," walks you through the basic contours of the CBAM reporting period.3 Below, we discuss the main differences and clarifications introduced in the final Implementing Regulation.
Clarity on modifying and correcting CBAM reports
The Implementing Regulation confirms that reporting declarants may still modify and correct their CBAM report after submission, within certain deadlines.4 Yet the published text added discretion for the competent authority to assess a request for modification to either allow or refuse it.5 Where the competent authority refuses a proposed modification, this refusal must be justified, and reporting declarants must be informed of their rights to appeal.6
Further flexibility in the use of estimated values
The reporting obligations of the embedded emissions of CBAM goods will ultimately be fulfilled under two different methods7:
- Through a measurement-based approach, based on continuous measurement of the concentration of the relevant greenhouse gases themselves
- Through a calculation-based approach, under which emissions are determined based on activity data from separate source streams
Recognising the need for sufficient flexibility regarding the calculation of embedded emissions of imports during the transitional phase, the Implementing Regulation has introduced the use of estimated values. This is the case when the actual emissions data is not available from installation operators, and it does not account for a significant part of the embedded direct emissions of the imported goods.8 Specifically, estimated values may be reported by declarants for precursors that take up less than 20 per cent of the total embedded emissions of a complex good if those estimates are provided by the operators of the installations.9
Use of default values and other methods
The Implementing Regulation confirms that the use of default values provided by the Commission or other calculation schemes will only be possible during specified time periods:
Until 31 July 2024
The Implementing Regulation allows reporting declarants to rely on other methods, including default values, to calculate their embedded emissions until 31 July 2024.10 This option is only available where the reporting declarant does not have all the necessary information listed in Article 3(2) and (3) of the Implementing Regulation.
Until 31 December 2024
During the first 15 months of implementation, the Implementing Regulation allows companies to choose between certain existing methods of calculating embedded emissions. These other methods can include carbon pricing schemes, compulsory emissions monitoring schemes, or an emission monitoring scheme at the installation.11
Penalties
The Implementing Regulation allows Member States to impose penalties where the CBAM report is incorrect or incomplete.12 It also introduces new penalties in instances where the reporting declarant does not include adequate justification for using reporting rules other than those listed in Annex III. Previously, such penalties only applied in instances where the declared emissions were different from published default values without justification.13
Member States will consider several factors when determining the amount of the penalty for the unreported emissions calculated, based on default values, such as:14
- The extent of the unreported information
- The intentional or negligent behaviour of the declarant
- The past behaviour of the reporting declarant with respect to compliance with the reporting obligations
- Whether the reporting declarant has voluntarily taken any measures to mitigate future similar infringements
- The level of cooperation from the declarant to address the infringement
- The unreported quantities of imported goods and the unreported emissions relating to those goods
- The readiness of the reporting declarant to comply with requests for information or to correct the CBAM report
Penalties can range between EUR 10 and 50 for each tonne of unreported embedded emissions,15 and increase in line with the European index of consumer prices.
The Implementing Regulation broadens the scope of the penalties by specifying that higher penalties will apply when more than two incomplete or incorrect reports16 have been submitted in a row, or the duration of the failure to report exceeds six months.17
Litigation surrounding CBAM
Concerns around the consistency of the CBAM with the World Trade Organisation’s rules continue to be raised at the international level. Within the EU, Poland has contested the CBAM’s legislative procedure at the Court of Justice of the European Union ("CJEU"). On 8 August 2023, Poland announced its challenge to the regulation by saying that the decision to adopt the CBAM via an ordinary legislative procedure was inappropriate as the CBAM would be a fiscal measure and require unanimity among Member States for adoption.18
Ruth Benbow (Knowledge Manager, London) and Mia Monas (Trainee, Brussels) contributed to the preparation of this publication.
1 Commission Implementing Regulation (EU) 2023/1773 of 17 August 2023 laying down the rules for the application of Regulation (EU) 2023/956 of the European Parliament and of the Council as regards reporting obligations for the purposes of the carbon border adjustment mechanism during the transitional period ("Implementing Regulation").
2 Article 1 of the Implementing Regulation.
3 See here for previous White & Case client alerts relating to CBAM.
4 Article 9 of the Implementing Regulation.
5 Article 9(3) of the Implementing Regulation.
6 Article 9(4) of the Implementing Regulation.
7 Annex III (B.2) of the Implementing Regulation.
8 Recital 10 of the Implementing Regulation.
9 Article 5 of the Implementing Regulation.
10 Article 4(3) of the Implementing Regulation.
11 Article 4(2) of the Implementing Regulation.
12 Article 16(1)(b) of the Implementing Regulation.
13 Article 13(2)(c) of the Implementing Regulation.
14 Article 16(3) of the Implementing Regulation.
15 Article 16(2) of the Implementing Regulation.
16 Incomplete or incorrect reports are assessed according to Article 13 of the Implementing Regulation.
17 Article 16(4) of the Implementing Regulation.
18 Court of Justice of the European Union, Republic of Poland v European Parliament and Council of the European Union (Case C-512/23).
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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
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