The Carbon Border Adjustment Mechanism (CBAM), also known as the Carbon Border Tax or Carbon Border Tax, is a tax levied by the EU on the carbon emissions of some imported goods. This mechanism requires that high-carbon products imported to or exported from the EU pay corresponding taxes and fees or refund corresponding carbon emission quotas.
The industries levied by the "carbon tariff" cover steel, cement, aluminum, fertilizers, electricity and hydrogen, mainly targeting direct emissions in the production process and indirect emissions in the three major categories of cement, electricity and fertilizers (i.e. during the production process Carbon emissions from the use of purchased electricity, steam, heat or cooling) and a small amount of downstream products.
In order to strengthen enterprises' understanding of and response to the EU's carbon border adjustment mechanism, the Barrier Division of the Trade Remedy and Investigation Bureau of the Ministry of Commerce has compiled the "EU Carbon Border Adjustment Mechanism Questions and Answers" based on public information for your reference.
1. What is the “EU Carbon Border Regulation Mechanism”?
The Carbon Border Adjustment Mechanism (CBAM) is the supporting legislation of the EU Emissions Trading System (ETS). The ETS requires EU manufacturers of covered products to purchase carbon emission certificates from the government based on the carbon emissions produced during the production process. CBAM requires importers of covered products to purchase carbon emission certificates from the EU. In fact, it requires non-EU manufacturers that export covered products to the EU to pay the equivalent carbon emission costs as manufacturers within the EU.
2. When will CBAM take effect and be implemented?
According to the provisions of Article 36 of CBAM, CBAM has entered into force on May 17, 2023 and will be implemented on October 1, 2023.
The implementation of CBAM is divided into transition period and formal implementation stage. According to CBAM regulations, the CBAM transition period is from October 1, 2023 to December 31, 2025.
During the transition period, the main obligation of importers under CBAM is to submit reports to the CBAM authority on a quarterly basis. The report contents include:
(1) The quantity of each CBAM covered product imported in the quarter; (2) The embodied carbon emissions calculated according to CBAM Annex IV; (3) The carbon price that the covered products should pay in their country of origin. Reports should be submitted no later than one month after the end of each quarter. Failure to submit reports on time will result in penalties.
3. What industries does CBAM cover?
After CBAM is officially implemented, it will apply to steel, cement, fertilizers, aluminum, electricity and hydrogen, as well as some precursors (such as ferromanganese, ferrochrome, ferronickel, kaolin and other kaolins, etc.) and some downstream products (such as steel screws and bolts) ). Annex 1 of the CBAM Act lists the names and customs codes of products covered by CBAM.
4. How to obtain CBAM’s authorized applicant qualification?
The competent authority of the Member State where the applicant is located is responsible for granting CBAM authorized notifier status. The status of an authorized CBAM filer shall be recognized in all EU Member States. Before approving a notifier's application, the competent authorities shall carry out a consultation process through the CBAM registry, which shall involve the competent authorities of other EU countries and the European Commission.
5. Why do you need to obtain CBAM authorized applicant qualification?
Unauthorized CBAM filers are not allowed to import goods covered by CBAM.
If a person other than an authorized CBAM declarant imports goods into the EU in violation of CBAM, a fine shall be paid. The amount of the fine shall depend on the duration, severity, scope, intentionality and repetition of the conduct, as well as the relationship between the person punished and the competent CBAM authority. degree of cooperation. If the CBAM certificate is not handed over by the punished person, the penalty shall be 3-5 times the fine mentioned in paragraph 1 of the year of introduction of the goods.
6. How to purchase CBAM certificate?
The European Commission should establish a common central platform between the European Commission and member states to sell CBAM certificates. Member States should sell CBAM certificates to authorized CBAM filers.
The price of CBAM certificates shall be determined based on the average closing price of EU Emissions Trading Scheme allowances on the common auction platform each calendar week. Such average price shall be published by the European Commission on its website or by any other appropriate means on the first working day of the following calendar week and shall apply from the first working day of the following calendar week.
7. How to hand in the CBAM certificate?
Authorized CBAM filers should hand in a certain number of CBAM certificates through the CBAM registration office before May 31 of each year. The number of certificates shall be consistent with the amount of embodied emissions declared in accordance with Article 6, paragraph 2 (c) and verified in accordance with Article 8.
Authorized CBAM declarers should ensure that a corresponding number of CBAM certificates are retained in their accounts. The European Commission will deduct these certificates from the CBAM register. Authorized CBAM filers should ensure that the number of CBAM certificates remaining in their accounts at the end of each quarter is equivalent to at least 80% of their embodied emissions determined by reference to the default value in all imports since the beginning of that calendar year.
If the Commission finds that the number of CBAM certificates in the account does not meet the corresponding requirements, it shall notify the competent authority of the country where the authorized declarer is located. The competent authority shall notify the authorized declarer within one month and ensure that there is a sufficient number of CBAM certificates in his account. CBAM certificate.
8. What to do with the remaining CBAM certificates after they are handed over?
The remaining CBAM certificates after an authorized CBAM declarant surrenders the certificates as required shall be repurchased by the member state where the declarant is located. The European Commission should buy back CBAM certificates on behalf of the respective Member States.
The repurchase quantity shall be limited to 1/3 of the total number of CBAM certificates purchased by the authorized CBAM filer during the previous calendar year. The repurchase price shall be the price at which the certificate was purchased by the authorized declarant.
9. Does the CBAM certificate have a validity period?
The European Commission shall cancel by July 1 of each year any CBAM certificate purchased in the year before the previous calendar year that remains in the CBAM Registry account.
10. What are the product-embedded emissions calculated by CBAM?
The CBAM Act will cover direct emissions and indirect emissions under certain conditions. According to CBAM, direct emissions are emissions from the heating and cooling production consumed in the production process, and indirect emissions are emissions from the electricity used in the production process. Annex 1 of CBAM specifies the CN codes of products to which CBAM applies, and Annex 2 specifies the list of goods for which only direct emissions are currently considered. According to CBAM Annex II, for steel, aluminum products and hydrogen covered by the bill, only direct emissions are currently considered.
