Carbon Border Adjustment Mechanism's (CBAM) transitional phase – What does it mean for the UK Tech Sector?
What is the EU’s Carbon Border Adjustment Mechanism's (CBAM)?*
As part of the EU’s Emission Trading System’s (ETS) environmental obligations within the wider European Green Deal Strategy’s European Climate Law, the new policy mechanism aims to tackle the risk of carbon leakage within trading goods via equivalent carbon pricing for imports and exports (within the EU) that are subject to carbon costs under the EU ETS.
*It's possible the mechanism's expansion of scope (after the initial phase period) could expand to a wider set of materials, including; polymers, mineral oils, glass, and packaging, which may have a wider reach within tech value chains.
What does it mean for the UK Tech Sector?
Despite being an EU membership policy regime, the obligations will affect UK hardware tech companies – creating precedence towards influencing wider carbon reducing international and national trade activities, policymakers and business leaders are looking towards best-practice frameworks to capture and reduce carbon-leakages within supply chains.
In order to prepare for the transitional period, businesses can;
- Prepare for transitional-period reporting requirements; including assessing technical, policy and operational parts to producing required data-sets covering embedded emissions and carbon prices.
- Map cross-departmental responsibility of reporting; including Monitoring, assessing, and Identifying CBAM-covered EU imports.
- Understand financial impact; taking mitigation actions where possible, following anticipated changes in energy and electricity tax areas (for example, the Energy Taxation Directive’s ‘Excise Duty on Energy’ provisions).
Reporting details include;
- Emissions within each product; total Verified Greenhouse Gas (GHG) emissions embedded in goods imported annually, following the transitional period, the financial impact of CBAM will increase, with a progressive phase-in of additional costs until 2034.
- Consistency throughout value-chain cycle; Number of CBAM certificates in its CBAM registry account at the end of each quarter corresponds to at least 80% of the embedded emissions in imported products since the beginning of the calendar year.
Details and developments of CBAM
The transitional provisional period will occur between Between 1 October 2023 and 31 December 2025, details include;
- Quarterly emissions reporting will be required and purchasing CBAM certificates will be optional, whilst importers (customs declarants, indirect representatives) will be required to quarterly report embedded emissions in goods.
- From 31 December 2024, importers must obtain ‘authorised CBAM declarant’ status to qualify for importing goods that are in-scope.
Release of detailed reporting rules and guidance;
- On 17 August, The European Commission adopted the transitional phase’s rules, implementing Regulation published today details the transitional reporting obligations for EU importers of CBAM goods, as well as the transitional methodology for calculating embedded emissions released during the production process of CBAM goods.
- To help both importers and third country producers, the Commission has also published today guidance for EU importers and non-EU installations. At the same time, dedicated IT tools to help importers perform and report these calculations are currently being developed, as well as training materials, webinars, and tutorials to support businesses when the transitional mechanism begins. As importers will be asked to collect fourth quarter data, their first report will only have to be submitted by 31 January 2024.
- Additionally, the Commission has also released reader-friendly guidance documents and webinar recordings to support import businesses’ understanding of CBAM’s implementation regulations, and ways of mapping internal operations towards following required reporting obligations.