Carbon Border Adjustment Mechanism: Anticipation and Vigilance


ESG eAlert


The European Union aims to achieve climate neutrality in 2050. To do so, it launched the European Green Deal in 2019, followed by the introduction of the “Fit for 55” package on July 14, 2021. The objective is to attain a 55% reduction in greenhouse gas emissions by 2030.

This legislative package not only reinforces the European Union’s emission trading system (referred to as “ETS” but also establishes the Carbon Border Adjustment Mechanism (referred to as “CBAM”). CBAM’s main objectives include:

  • Combating carbon leakage and bolstering climate ambition at the European level.
  • Imposing a carbon price on products imported into the EU.
  • Ensuring equitable rules between European and third-party producers within the Union.
  • Gradually phasing out free allowances.

The final texts related to the CBAM Regulation were adopted on May 10, 2023. Furthermore, the Commission Implementing Regulation (EU) 2023/1773 laying down the rules for the application of Regulation (EU) 2023/956 of the European Parliament and of the Council as regards reporting obligations for the purposes of the carbon border adjustment mechanism during the transitional period was adopted was adopted by the European Commission on August 17, 2023 and published in the Official Journal of the European Union on the 15th of September 2023. 

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CBAM: is it time to accelerate decarbonisation strategies?

I. What is the scope of CBAM?

The regulation applies to goods whose tariff classification is listed in Annex I of regulation (EU) 2023/956 of the European Parliament and the Council of May 10, 2023, and which originate from a third country. These products include:

  • Iron & Steel (exception of certain ferrous alloys).
  • Aluminum.
  • Cement.
  • Fertilizers.
  • Hydrogen.
  • Electricity.

Once these goods are released into free circulation within the customs territory of the Union as a result of importation or further to an inward processing procedure, they are subject to the CBAM regulation.

It should be noted that several exceptions allow for the exclusion of the CBAM, including cases where:

  • The customs value upon importation is less than 150 euros.
  • The shipment originates from specific countries (Iceland, Liechtenstein, Norway, Switzerland).
  • The importation is related to a military operation.

II. Which operators are affected by the CBAM?

Under Regulation (EU) 2023/956 of the European Parliament and of the Council of May 10, 2023, establishing the CBAM, the following operators are affected: importers of products subject to the CBAM in the European Union, as well as customs representatives acting under an indirect customs representation mandate. It is important to note that, in the latter case, the indirect customs representative will be considered the CBAM declarant under the applicable regulations.

III. What is the timeline and what are the obligations for the concerned operators?

Transition Period (from October 1, 2023, to December 31, 2025)

Starting from October 1, 2023, the relevant importers must register on the CBAM platform and begin calculating imported emissions. The first CBAM report shall be established by January 31, 2024, and subsequently on a quarterly basis. It will be possible to amend the first CBAM report until July 31, 2024. The last report should be established before January 31, 2026.

Furthermore, specific details regarding the rules applicable during the transitional period are provided by the Implementing Regulation of August 17, 2023. For example:

  • An exemption regarding the calculation and application of embedded emissions may be applied until December 31, 2024, under certain conditions.
  • The declarant has the option to adopt a different methodology for determining the data used in the calculation of emissions.
  • Clarifications regarding specific rules pertaining to the declaration of CBAM products placed under the inward processing procedure.

In the first quarter of 2025, importing companies must gather supporting documents and apply as a “reporting declarant,” while also remaining attentive to potential requests for additional information throughout the year 2025. Authorizations will be communicated before 2026.

End of the transition period (starting from January 1, 2026)

From January 1, 2026: The status of “CBAM declarant” will be mandatory for importing products subject to the CBAM. It will be necessary to purchase CBAM certificates and maintain a minimum stock. An annual CBAM declaration, verified by an accredited verifier, must be submitted.

Additionally, it will be possible to submit requests for reimbursement of CBAM certificates under certain circumstances.

A new Implementing Regulation, intended to apply during the definitive period, should be adopted in the future, especially based on the information gathered during the transition period.

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CBAM: how to prepare for the new regulatory obligations ?

IV. Which competent authorities?

It is noteworthy that there will be a duality of competent authorities regarding the CBAM in France. Thus, the competent authority to which operators must report their imports is the Directorate General of Energy and Climate of the Ministry for the Ecological and Solidarity-Based Transition. However, Customs Administration have been designated as the supervisory authority and will be in charge of the customs implications of the mechanism.

Therefore, the Customs Administration will conduct verifications related to CBAM declarations, statuses, and certificates, particularly within the framework of documentary customs controls. It is important to emphasize that these new obligations will affect operators who are already subject to specific attention from the Customs Administration, for instance, within the context of anti-dumping measures.

V. What sanctions are in place?

Operators must exercise caution to avoid potential violations that could lead to the imposition of sanctions. These may include importing CBAM-covered goods without the “authorized CBAM declarant” status, making false customs declarations, or discrepancies between the number of returned CBAM certificates and the actual quantity owed.

In addition to the usual penalties and sanctions applied by the customs authorities, such as the blocking of goods and the application of customs penalties, ad hoc sanctions may also be applied, such as financial penalties based on the volume of emissions imported or the difference between the number of CBAM certificates surrendered and the quantity due, the possibility of withdrawing the status of “authorized CBAM declarant”, or the obligation to surrender CBAM certificates.

The Implementing Regulation concerning the transition period establishes a penalty ranging from 10 to 50 Euros per ton of undeclared emissions (i.e. failure to submit a CBAM report or submission of an incomplete or incorrect CBAM report).

Operators should, therefore, take steps now to anticipate changes to the importation of their products subject to the mechanism and to proactively address potential customs inspections. Special attention should be given to reviewing the tariff classification of imported products and coordinating with the foreign exporter, who should provide reliable emissions information in a timely manner. Additionally, it is essential to internally designate the teams responsible for managing these new complex obligations that require a wide range of skills.

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Fabien Radisic

Fabien Radisic

Avocat, Associé, ESG Leader, PwC Société d'Avocats

Luana  Higino Balbino

Luana Higino Balbino

Directeur, Douanes, PwC Société d'Avocats

José Manuel Moreno

José Manuel Moreno

Avocat, Associé TVA & Indirect Tax, PwC Société d'Avocats

Anouchka Lécaille

Anouchka Lécaille

Avocat, Manager, Douanes, PwC Société d'Avocats