CBAM's Continuing Evolution
As part of the ongoing reporting phase of the EU’s Carbon Border Adjustment Mechanism (CBAM), the EU Commission recently announced a proposed series of legislative measures which are intended to simplify how the new ecotax will work.
Balancing its overarching commitment to become climate neutral by 2050 with the simplification drive to cut red tape and administration for businesses in order to make the bloc more competitive (as outlined in its recent Competition Compass), the Commission set out a raft of revised measures in its Simplification Omnibus packages, certain of which aim to deliver a more straightforward operational CBAM.
The CBAM announcements had been signalled by the Commission throughout CBAM’s pre-implementation phase, with the legislative process factoring in the need for changes and refinements to the scope and operation of the flagship carbon tax, both prior to its revenue-raising go live date from 1 January 2026 and beyond. The key measures are set out below.
Registration simplification
The registration threshold for declarants (importers) in the impacted industrial sectors (iron and steel, aluminium, fertilisers and cement) has been changed from a monetary amount to one of mass. It has been set at fifty tonnes per annum, thereby removing 91% of potentially impacted businesses within the EU from the scope of CBAM whilst still capturing 99% of emissions.
Importers below the threshold will need to self-identify as ‘occasional CBAM importers’ when lodging their customs declarations and monitor that they do not exceed the threshold over the course of the year.
Anti-abuse measures will be strengthened, with greater monitoring, anti-circumvention and enforcement powers being enabled for national competent authorities (NCAs).
Authorisation and reporting simplification
Simplification of the authorisation process for declarants: importers will now be able to appoint a CBAM representative (e.g. a third party such as a consultant and/or environmental experts) in order to undertake their reporting obligations. Fiscal obligations will, however, remain with the declarants.
Representatives will need to fulfil certain criteria – e.g. holding an EORI number and being established in a Member State.
Non-calcined clays are to be excluded from scope of emissions calculations for declarants in the cement sector as they are not carbon-intensive products.
Reporting simplification – the use of default values will now continue to be permitted on an ongoing basis (the original intention had been to phase these out, other than for a maximum of 20% of reported emissions per commodity), albeit they will be weighted more heavily than actual values (the proposal is to set the alternative default value at the average level of the ten exporter/third countries with the highest emission intensities for which reliable data are available).
However, the Commission makes clear that the core principles of using actual and best data should be kept and that this will remain best practice. Over time, the expectation is that increasingly, it is actual values which will be reported.
Emission calculations for downstream processing: certain manufacturing processes are to be excluded from the emissions calculations for aluminium and steel goods, namely the final productions steps. Thus, the focus for these goods will be on calculating and reporting the embedded emissions in the precursor goods. This approach will ultimately also help regarding the eventual scope extension of CBAM to downstream goods, many of which are likely to be complex.
Precursors (i.e. goods subject to CBAM which are used in input materials into the production of other CBAM goods) which are produced in the EU and exported to third countries for the production of goods are to have zero embedded emissions attributed to them to ease reporting and compliance burdens.
Where default values published by the EU Commission are used for embedded emissions, these will no longer need to be verified by an eternal verifier.
Indirect emissions of electricity are to be excluded from the CBAM calculations – i.e. the emissions from the production of electricity which are consumed during the production of (other) CBAM goods.
Reporting requirements simplification: the annual deadline for declaration and certificate surrender is now delayed until 31 August, with the repurchase deadline moving to 30 September and the certificate cancellation precise date on 1 October.
This gives non-EU operators more time to verify their emissions and also gives declarants more time to submit their annual CBAM declaration, and to buy and surrender the requisite CBAM certificates.
Clarification of the ability of the controlling entity of a declarant (e.g. the parent company) to access the operators’ reporting portal and to be able to upload the calculation and verification reports of the installations of all its subsidiaries and the entities they control at once. Companies will also need to provide information regarding their ultimate controlling entities.
Accredited verifiers are to be granted access to the CBAM registry
Financial liability management simplification
At the end of each quarter, declarants will now need to ensure they have certificates on hand which correspond to 50% (rather than 80%) of the emissions embedded in the goods they have imported since the start of the year. This will be based on default values (minus the mark-up and of corresponding free allocation) or they can use the number of CBAM certificates they surrendered in the previous year for the same goods.
This information will be made available to declarants in the CBAM registry to assist declarants with their calculations and NCAs with enforcing compliance.
The expectation is that declarants will access the registry at least once a quarter in order to manage their financial liabilities.
The cap of NCAs being limited in their repurchase of a maximum of one third of the certificates purchased by the CBAM declarant in the previous calendar year is replaced by two new options: the declarant can sell back all the certificates it has been forced to purchase and they can also do so in the same year as the year of purchase.
CBAM certificates will now go on sale from 1 February 2027, instead of 2026, as previously envisaged. Prices for the 2026 liability will be calculated on the quarterly closing average ETS prices (as calculated by the Commission) for the quarters in which the goods were imported. Thereafter, it is envisaged the 2027 liabilities will be calculated on the weekly ETS average price basis.
Default values will be able to be used for carbon taxes/prices paid in third countries. This is an alternative to using actual carbon price/tax data. Once again, the Commission expects better data to emerge from third countries over time and the default values will be more conservative to incentivise the use of actual data.
Taken together, this package of measures will be welcomed by business throughout the EU as not only does it remove many SMEs from the scope of the new tax, but the measures also vastly simplify the reporting and accounting of the new carbon tax for those businesses which remain within its scope.
The Commission has indicated that there will be further refinements ahead regarding extending the scope of CBAM (e.g. its application to downstream products) and we will consider these in more detail in our next blog.
For now, this is a reminder that the reporting phase is live and third country suppliers (e.g. the UK) to EU CBAM declarants should ensure that they can provide emissions data where this is required, with a failure to do so leading to increasing commercial ramifications.
Should you have any CBAM related queries, please contact Craig at: craig@vita-uk.com
