Transition Rules Set for EU’s Carbon ‘Tax’

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    Stockholm (NordSIP) – EU’s Carbon Border Adjustment Mechanism (CBAM) is becoming more tangible as the date for its debut draws closer. On 17 August, the European Commission officially adopted the rules to govern the mechanism’s implementation.

    Earlier this year, the European Parliament approved several interconnected pieces of legislation that form the backbone of the ‘Fit for 55’ package, CBAM being one of those. The mechanism is designed to prevent so-called ‘carbon leakage’. By incentivising non-EU countries to increase their climate ambition, the CBAM strives to ensure that EU and global climate efforts are not undermined by production being relocated from the EU to countries with less ambitious policies.

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    The goods covered by CBAM are iron, steel, cement, aluminium, fertilisers, electricity, hydrogen, and indirect emissions under certain conditions. Once the EU’s new carbon tax on imported goods is in force, importers will have to pay any difference between the carbon price paid in the country of production and the carbon allowances in the EU’s Emissions Trading System (ETS).

    During the CBAM’s transitional phase, from 1 October 2023 until 31 December 2025, traders will only have to report on the emissions without paying any financial adjustment. The implementation regulation adopted last week details these reporting obligations. Importers of goods that are subject to CBAM are required to collect fourth-quarter data from 1 October this year and submit the first report by 31 January. They need to provide information on the goods’ country of origin, the installation where they were produced and the geographical coordinates of the primary emissions source of the facility, among others.

    The regulation also clarifies the methodology for calculating embedded emissions released during the production process of the specified goods. To help importers and third-country producers, the EC has published guidance on the practical implementation of the new rules. Additional support will come from the IT tools for performing and reporting the calculations and from training materials, webinars, and tutorials. They are all under development and will be available when the transitional mechanism begins.

    The EC estimates that the transitional phase will give sufficient time for businesses to prepare while also allowing for the definitive methodology to be finetuned by 2026 when the EU starts phasing in the actual levy.

    Image courtesy of Gerd Altmann from Pixabay
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