Updated: Sep 20
Carbon Border Adjustment Mechanism (CBAM)
The Carbon Border Adjustment Mechanism (CBAM) is an integral component of the European Green Deal, designed to counteract carbon leakage. Carbon leakage arises when businesses shift their operations or sourcing to regions with laxer carbon reduction standards. This poses a challenge for local manufacturers who, due to their adherence to stringent regulations, may incur higher costs for compulsory carbon credits compared to international competitors.
CBAM stands as an ambitious project, aspiring to standardise carbon credit trading and level the playing field. However, it has evoked concerns among international businesses about its potential trade implications and fears of it being a façade for protectionism, potentially leading to global disputes. While the World Trade Organisation (WTO) could offer a platform to mediate these concerns, it's essential to note that there's no inherent clash between CBAM and the principles of free trade, especially since carbon commitments globally are multilateral in nature. Yet, the challenges CBAM presents, particularly to businesses under its ambit, are significant.
How Tevolution Ltd Can Help?
Tevolution Ltd boasts a team of seasoned trade compliance consultants and customs intermediaries. Our expertise lies in offering training and compliance guidance to companies that fall under CBAM regulations when exporting to the European Union.
When it comes to reporting obligation under Carbon Border Adjustment Mechanism, regulation also stipulates that reporting entities must be established in the EU.
From 1st October 2023, intricate reporting guidelines related to exports will be in effect. Companies must familiarise themselves with these directives to maintain seamless trade operations and avert potential fines. This encompasses accurate reporting of goods and a deep understanding of manufacturing protocols to precisely quantify embedded carbon emissions.
It's essential for specialists to scrutinise product classifications, origin rules, and declarations to bypass potential layered liabilities. While CBAM is categorised as a levy, with no payments required during its transitional phase, any infractions will be closely monitored at the EU level. The ensuing potential revenues from these contraventions are within the EU's jurisdiction, underscoring the importance of strict risk management, anti-fraud surveillance, and compliance.
The implications of CBAM are crucial for risk and compliance managers to understand. As CBAM integrates into Customs law, it's expected to be supervised by Trade Compliance Teams, traditionally responsible for customs and export controls.
At Tevolution Ltd, we harmonise environmental objectives with cross-border customs compliance. Our seasoned consultants guide you in adhering to reporting standards, ensuring your documentation meets the necessary monitoring and verification criteria.
If you are an EU importer and need assistance with your CBAM reporting requirements or if you'd like us to help your suppliers navigate these challenges, please connect us with them. We are committed to streamlining and expediting the process to ensure you achieve the necessary compliance goals promptly.
What You Need to Do?
Examine your HS codes and pinpoint those that fall under the regulation's scope.
Review both non-preferential and preferential origin rules; determine countries both within and outside the regulation's reach.
Engage with your suppliers, informing them about the data requisites and accounting criteria.
Consult your customs agent to ascertain their reporting readiness and determine the primary reporting entity.
Initiate training sessions for relevant teams.
Prioritise collaboration between sustainability and trade compliance teams, along with other key stakeholders.
Begin data collation promptly to prevent future work backlogs.
Further steps to take
The Carbon Border Adjustment Mechanism (CBAM) is enshrined in the EU's statutory carbon reduction policy and operates within the established rules of the EU Emission Trading Scheme. Its primary aim is to balance the carbon taxation discrepancies between importers and manufacturers, especially when carbon taxation is lower for exports from certain regions.
For entities responsible for carbon-emitting installations, having prior knowledge of the GHG Protocol and understanding voluntary carbon reduction policies can be beneficial. This understanding can shed light on the industrial processes that contribute to carbon emissions. To ensure compliance with CBAM, these entities should provide relevant data to importers of products that fall under CBAM's purview. To do this effectively, they should adhere to the EU's recommended steps:
Define the installation’s boundaries.
Define the reporting period.
Identify all the parameters for monitoring.
Determine the methodology to monitor each parameter.