EU’s CBAM: What do you need to do before July 2024 to avoid penalties for non-compliance?

EU importers of products impacted by the EU’s Carbon Border Adjustment Mechanism (CBAM) need to collect and disclose the actual embedded emissions data (instead of default values) of their imports from global (non-EU based) manufacturers from 31 July 2024.

The transitional phase of the EU’s Carbon Border Adjustment Mechanism (CBAM) began on 1 October 2023. This meant that EU importers of steel, aluminium, cement, fertilizer, hydrogen, and electricity had to submit the first required quarterly report detailing the embedded carbon emissions of their imports on 31 January 2024.

However, the media has reported that only a minority of European companies have complied with this early reporting deadline. Those who have not yet submitted CBAM reports have until 31 July 2024, otherwise they will face the risk of being fined

Further to this, for those who have submitted reports, the EU made it possible to submit emissions data using default values for the first three quarterly reportsr. However, for the remaining transitional period – from 1 July 2024 to 31 December 2025 – importers will have to provide actual values (estimated values may still be used with a quantitative limit of up to 20% of the total embedded emissions).

The challenges for importers

Based on our discussions with customers, there are a number of difficulties importers have experienced with sourcing, and therefore submitting, the actual emissions data corresponding to their imports, including:

  • They’ve had difficulty tracing back to the third-country operator who manufactured the goods
  • The third-country operators had difficulties determining the actual emissions according to the new CBAM methodology
  • They were not confident in the credibility of emission information they received from the operators
  • The third-country operators hadn’t taken necessary steps to determine actual emissions
  • They opted for the simplest way of reporting (default values were pre-filled in the CBAM transitional registry)

What steps do importers need to take to ensure the emissions data they provide to the EU is accurate?

EU importers should perform a screening on the emissions data they received from third-country operators to ensure that it is the actual data determined according to the CBAM greenhouse gas (GHG) accounting principles.

This screening can consist of asking third-country operators for relevant documentation, such as the calculation template and supporting evidence, to ensure its alignment with the CBAM methodology.

There are other steps that can be taken to ensure quality control for accurate carbon accounting, which include:

  • Verifying data by cross-checking against multiple sources to ensure consistency and accuracy
  • Performing audit to assess data quality and identify potential discrepancies
  • Validating the accuracy of calculations and measurements

Verification of emissions data – what are the benefits?

From 2026 (after the transitional period has ended, and when companies will start having to pay the carbon tax based on the emissions of their imports), the emissions data of imported goods will need to be verified by a third-party before being submitted to the European Commission. However, there are many benefits to ensuring that you procure accurate emissions data before this. This would:

  • Ensure that third-country operators are ready for the definitive period so the risk of non-compliance (and therefore, fines) is minimized
  • Provide an accurate estimation of financial exposure when the tax will apply – precise emissions data will allow this
  • Enable companies to take informed decisions regarding business and supply chain decarbonization strategies

How can DNV help?

We can help EU importers to enable supply chain transparency, and therefore to deliver accurate CBAM reporting, through:

  • Assisting in the collection of emissions data at the installation level
  • Assessing the quality of emissions data received from suppliers
  • Providing an accurate evaluation of the financial impact of CBAM

We can help suppliers (based outside of the EU) in:

  • Supporting in the CBAM readiness and the determination of the actual embedded emissions
  • Building and managing elements of a wider decarbonization strategy and low-carbon initiatives

Contact us to find out more.

4/15/2024 9:12:00 AM