Introduction to CBAM

What triggers a CBAM reporting obligation?

A CBAM reporting obligation arises when an importer releases a CBAM good, originating from a non-EU country, into free circulation in the EU after October 1, 2023.

What qualifies as a CBAM good?

CBAM goods are classified by their CN (Common Nomenclature) code, which is a system used to categorize goods. If a good’s CN code appears in Appendix II of the CBAM implementing regulation, it is classified as a CBAM good. The major categories covered under the CBAM regulation include:

• Hydrogen
• Electricity
• Aluminum
• Iron and steel
• Ferroalloys
• Cement

CBAM goods are further categorized into simple goods (minimally processed, such as aluminum ingots) and complex goods (more processed, such as steel screws).

What does "release for free circulation" mean?

When goods are imported into the EU, a customs declaration must be filed, including a customs procedure code indicating the intended use within the EU. Goods released for free circulation are those that enter the EU market for consumption, without restrictions. Relevant customs procedures for CBAM include codes 01, 07, 40, 42, 43, 44, 45, 46, and 48. Goods under inward processing arrangements are not subject to CBAM unless later released for free circulation in the EU.

Types of customs representation

Customs representation in the EU can be either direct or indirect:

• Direct representation: A customs representative files a declaration on behalf of the importer.
• Indirect representation: The representative files the declaration in their own name but on behalf of the importer.

Most EU-based organizations use direct representation, while non-EU organizations often use indirect representation.

What is a third country as per the EU definition?

A third country refers to any country outside the EU, excluding Switzerland, Liechtenstein, Norway, and Iceland.

What if I don’t have a CBAM reporting obligation?

If you do not have a CBAM reporting obligation, no action or declaration is required. If no CBAM goods are cleared in a specific reporting period, no declaration is needed for that quarter.

What to do if you have a CBAM reporting obligation?

1. Register as a CBAM declarant: You must first register through the National Competent Authority (NCA) of your EU member state.
2. Obtain customs data: Work with your customs agent to gather information on CBAM goods released into free circulation during the reporting period.
3. Engage suppliers: Contact suppliers to inform them about CBAM reporting requirements, particularly regarding the calculation of embedded emissions in their products.

Authorities involved in CBAM reporting

National Competent Authorities (NCAs): Manage access to the EU Transitional Registry.

European Commission: Maintains the EU Transitional Registry.

Internal stakeholders for CBAM reporting

Several teams within an organization are likely to be involved in CBAM reporting, including:

• Customs, tax, and finance teams: Handle customs data and access the EU Transitional Registry.
• Procurement teams: Liaise with suppliers to obtain CBAM-related information.

Required data for CBAM reporting

You will need two primary datasets:

1. Customs data: Includes information about imported goods, their TARIC/CN/HS codes, country of origin, and customs procedure.
2. Installation data: Details on the production facility where the goods were made, including embedded emissions data.

Who makes the CBAM declaration?

The CBAM declaration is typically made by the importer in cases of direct representation. In indirect representation, the customs agent often takes on the responsibility. The declarant may delegate the reporting task to a service provider.

CBAM reporting timelines

• Reporting for importers needs to be done quarterly in the transitional period, starting from the 31st January 2024 for imports that occurred in Q4 2023.
• Reporting for installations must be done quarterly, starting from early January 2024 and then must be performed annually from October 2024 onwards.
• In the definitive period, CBAM reporting is to be done annually for both importers and installations, although importers will need to monitor their imports and purchase CBAM certificates monthly through the CBAM registry.

Penalties for incorrect CBAM reporting

Penalties for inaccurate reporting range from €10 to €50 per tonne of CO2 equivalent misreported. However, there will be opportunities to correct errors before penalties are enforced.

European Commission default values

The EC provides default emissions intensity values, which can be used until July 2024. After this date, using default values will result in penalties. Installations can use these values for precursor materials, as long as default values don’t exceed 20% of total embedded emissions.