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The Carbon Border Adjustment Mechanism (CBAM) is part of the "Fit for 55" (legislative) package that provides important incentives to make the EU climate-neutral by 2050 and achieve a 55 percent reduction in CO2 emissions by 2030 relative to 1990 levels. It is intended to counteract the transfer of greenhouse gas emissions to countries with no or lower ambitions to fight CO2 emissions (carbon leakage risk). 

Provisions of the European Carbon Border Adjustment Mechanism

Importers are required to calculate the CO2 emissions of goods imported into the EU and purchase CO2 emission allowances for each tonne. This will be introduced in stages and, while many people are unaware of this, as of 1 October 2023, a reporting obligation has already been imposed on the first products: On a quarterly basis, affected importers are required to document the quantities imported into the EU, the direct and indirect carbon emissions embedded in these goods as well as any carbon taxes already paid on them, and then they must disclose this information in a quarterly CBAM report. Actual allowance trading is due to begin in 2026. 

Regarding the new CBAM regulations, there are a number of misconceptions that I would like to set straight in this article. 

Eight myths about the CBAM – and the facts to dispel them


This is far from the truth. While it is true that the EU Emissions Trading Scheme (ETS) almost exclusively affects the primary industries, the CBAM takes things further and also applies to processed products made of iron, steel or aluminium. And this is exactly what poses a challenge for companies. Until now, many companies importing these types of products assumed that the CBAM and the Emissions Trading Scheme were one and the same and therefore believed that they would not be affected. The corresponding EU regulation has now been published, with Annex I containing a list of the products concerned. It is thus clear that the number of companies affected is much larger than originally assumed.

No. Violations of the reporting obligation that came into force on 1 October as well as inaccurate reporting will be punished with a fine of at least EUR 10 per tonne of CO2 (and up to EUR 50 per tonne depending on the severity of the violation). What's more, starting on 1 January 2025, importers will be required to register as authorised CBAM declarants. Without this registration, it will no longer be possible to import CBAM goods into the EU. Please note: In order to be approved as a CBAM declarant, importers must be deemed economically reliable.

No. The CBAM's current scope is only provisional. The EU Commission plans to gradually expand the scope of application to cover all industrial goods by 2034. It intends to present a clear roadmap by the end of 2025. The Commission has indicated that the first expansion, which is likely to include plastics and chemical products, can be expected from the year 2027.

Generally speaking, the Implementing Regulation on CBAM reporting obligations does not stipulate that disclosure requirement values be estimated, as the CBAM system is to be based on actual values. When determining the greenhouse gas emissions embedded in imported goods, there are two permitted methods: First, the emissions can be determined based on material flows and calculation factors derived from laboratory analyses or standard values (calculation method). The second method involves continuously measuring the concentration of greenhouse gases in the exhaust gas flow (measurement method). During the transitional phase that runs until 31 December 2024, other recognised methods may also be used to monitor and report emissions, provided they yield similarly accurate emissions data. Furthermore, until 31 July 2024, entities subject to reporting obligations can use default values provided by the EU Commission to supplement emissions information that has not been provided by manufacturers. From 1 August 2024, the use of default values to determine the emissions embedded in imported goods will only be possible to an extremely limited extent. Default values may only be used if the percentage of the emissions determined using the default values does not account for more than 20% of the total emissions of a product. As a result, importers will need to obtain actual values from suppliers in order to fulfil their CBAM reporting obligations. 

The CBAM does not represent an additional carbon border tax and, as such, cannot be reduced to being a new trade defence instrument of the EU. The EU is not alone in its efforts to promote decarbonisation: key trading partners such as Canada, the UK and Australia are introducing similar carbon pricing systems. To ensure a fair competitive environment, carbon taxes already paid on imports into the EU will be recognised under the CBAM, thereby reducing CBAM costs to the same extent. Furthermore, when purchasing emissions trading allowances, discounts will be granted that correspond to the level at which the economy benefits from free allowances under the European Emissions Trading Scheme (EU ETS). These regulations are intended to ensure that the CBAM is an instrument that makes a significant contribution to decarbonisation.

In conjunction with the other decarbonisation measures from the Fit for 55 package, the effects of the CBAM are expected to be more long-term than short-term. As such, the implementation of the CBAM has started with a reporting obligation concerning imported greenhouse gas emissions. A reporting obligation by itself only constitutes a partially effective instrument when it comes to creating suitable incentives for decarbonisation. Only once the emissions trading phase comes into effect on 1 January 2026 will there be real incentives for decarbonisation. This will be supported by the new EU emissions trading system, which, from 2025 onwards, will gradually phase out free emission allowances by 2034. From 2034 onwards, for every tonne of CO2 emitted, an emission allowance must be purchased in the EU. As the number of EU ETS allowances is limited, prices for allowances will rise significantly. Regarding the allowance price, the CBAM is directly linked to the ETS, meaning that the prices for CBAM allowances will also rise significantly over the duration of this period. This should help achieve the intended decarbonisation incentive. 

New sustainability regulations require the companies in question to rethink their organisational structure and processes. Products are being subject to new sustainability requirements in order to gain access to the EU internal market. These requirements include providing information on carbon emissions, the proportion of secondary raw materials in products, the proportion of hazardous materials, requirements for reparability, interchangeability, durability and the digital product passport. All of these represent cornerstones of the EU's new circular economy strategy. In addition to this, products must also meet minimum human rights, social and environmental standards. 

No, in addition to CO2, the CBAM also applies to other greenhouse gases such as nitrous oxide (fertilisers) and perfluorinated hydrocarbons (aluminium) for some products. The framework of the CBAM stipulates that these greenhouse gases, together with CO2, must be converted into CO2 equivalents per tonne of goods. The CO2 equivalents embedded in the imported goods provide the basis for the CBAM allowances that must be purchased from 1 January 2026 when emissions trading begins.

Everything you need to know about the CBAM at a click

We explain the CBAM and clear up misconceptions

Who is affected, what reporting obligations apply and to which product groups should the Carbon Border Adjustment Mechanism (CBAM) be applied? There are a number of false assumptions and myths surrounding the new regulation. We clarify and set the record straight. You can also read the blog post by our expert Stephan Freismuth.

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