From reporting emissions to balancing the difference in climate costs of imported products, the KPMG team helps clients understand and adapt to this new mechanism of the EU’s climate policy.
What is the Carbon Border Adjustment Mechanism (CBAM), and why is it so important?
The EU’s climate policy, implemented as part of the European Green Deal, covers more and more sectors of the economy and uses an increasingly extensive set of tools. One of them is the Carbon Border Adjustment Mechanism (CBAM).
CBAM is a response to the risk of moving the production of goods from energy-intensive industries (which under current conditions are also high-emission) to countries with less stringent climate regulations and fees. In its definitive form, the scheme will require importers of certain products to pay fees to cover the costs of the difference between the emission fees in the country of production and fees under the EU Emissions Trading System (EU ETS).
Before this happens, starting from 1 October 2023 there is a requirement to report the total embedded greenhouse gas emissions of imported goods via a CBAM declaration. An importer who brings regulated products into the EU will have to apply for the status of a CBAM reporting declarant for itself, or be represented by an intermediary with this status.
Challenges for companies in implementing CBAM
The mechanism coming into force during the transitional period (from 1 October 2023 to 31 December 2025) will only require disclosure of the carbon footprint of imported products. After this phase is complete, the carbon footprint will be the basis for implementation of the obligation to purchase CBAM certificates, designed to level the playing field between companies producing regulated goods outside the EU and companies producing them inside the EU and incurring costs to comply with the EU climate policy.
CBAM will apply to a wide range of products, the most important of which are:
As a result of the legislative work of the European Commission and the European Parliament, hydrogen and an extensive set of products made of iron, steel or aluminium have also been included in the CBAM regulations.
Enforcement of this regulation will significantly impact the profitability of business operations and the investment decisions of the companies affected by it. A short-term effect will be the need to comply with reporting requirements—obtaining the expected emission data and completing the necessary documentation. In the long term, CBAM will increase the interest in decarbonization measures reducing the carbon footprint of products covered by the scheme and incorporating them into the company’s broader framework of a well-thought-out, economically effective decarbonization strategy.
Benefits of implementing an integrated approach to CBAM
1 Obtaining the data needed to calculate the company’s carbon footprint.
2 Achievement of the regulatory and financial requirements provided by law.
3 Development and implementation of a decarbonization action plan.
Supporting businesses in meeting EU requirements for CBAM
CBAM will affect the business conditions for many market players covered by the scheme, for whom we tailor our services:
- CBAM training—mechanism of operation, calculation and reporting of emissions
- Mapping of products covered by CBAM for importers and other links in the value chain, and analysis of their preparedness to meet regulatory obligations
- Analysis of the impact of the purchase of CBAM certificates on the company’s operating expenses
- Calculation of the carbon footprint of products imported into the EU, verification and implementation of internal emission measurement mechanisms
- Support in the process of obtaining the status of a CBAM reporting declarant
- Support in completing the forms required by the competent national authority responsible for CBAM.
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