One year of the Carbon Border Adjustment Mechanism

The Carbon Border Adjustment Mechanism Regulation has been in force since October 2023. This marks the anniversary of the regulation for the current reporting period. This should be an opportunity to take stock and provide an outlook for the new CBAM year.

Companies affected

The regulation started with a scope of application limited to the well-known sectors of iron and steel, aluminium, fertilizers, cement, electricity and hydrogen. It has become apparent that the iron and steel sector in particular is already very affected. However, due to the fact that many intermediate and finished products are already included here, there are many companies that are only affected with a few shipments of goods. Nevertheless, due to the lack of company-specific exemptions, they had and still have to deal with the demanding reporting obligations during the transition phase.

Handling by the authorities

Unfortunately, the European Commission's introduction of the regulation was rather unfortunate. It is still well remembered that the CBAM Transitional Registry was only made available very late at the end of the first reporting period. It then suffered from major errors and overloads, which ultimately made it necessary to extend the reporting period. The same can be said of other important information such as the announcement of the competent authorities or the initially usable default values. Various tools were then made available on an ongoing basis. In addition to the basic guidelines for European companies and producers in third countries, the European Commission's Communication Template should be mentioned here in particular. The so-called self-assessment tool was also recently published. The national authorities differ in their handling of the regulation and the support provided. While in some countries there was quickly a telephone hotline or at least an e-mail address that could be contacted for help and questions, in Germany in particular, this is still being waited for in vain.

The first reporting periods

After major difficulties in reporting, partly due to the CBAM Transitional Registry, many companies have now become accustomed to the quarterly cycle. In previous periods, the standard values could be used in full. Reporting on emissions therefore caused fewer difficulties. The biggest tightening in the transition phase has now come into force with the obligation for actual emissions data. Most companies are therefore now having problems (again) with reporting for the third quarter of 2024. In line with the aforementioned impact on companies, the statistics show that the largest share of the import volume is limited to a small proportion of companies subject to CBAM. However, they also show that many companies affected by the regulation have not yet submitted any reports and have not yet dealt with the obligations.

Outlook for the next CBAM year

In the coming CBAM year, we can expect above all the application procedure for the status of authorized declarant. This status will be necessary in the regular phase from January 1, 2026 in order to continue to be allowed to import goods affected by CBAM. However, the regulation also contains a number of other implementing acts that provide further details on many aspects of the mechanism. The focus here is likely to be on the details of certificate purchases and the expected CO2 costs. In addition, the decision to extend the scope of application is expected, which will initially cover further intermediate and downstream products in the sectors concerned and will then also include other sectors. It has therefore been a bumpy start to a new era of climate protection policy in which CO2 emissions in the supply chain will cost money. The expansion of the mechanism means that more and more companies will have to deal with this new measure. But the expansion in sectors will also increase the impact on companies already covered by CBAM. Companies should therefore take the time to consider the increasing importance of CO2 emissions in the supply chain and their impact.

Forward-looking support

The Carbon Border Adjustment Mechanism is a new measure that is still in a state of flux. For companies, this is associated with legal and planning uncertainties. Please contact us directly (helge@kolum.earth)if you need support in preparing your company for the regulation and the associated challenges. We will make you CBAM-ready! Best regards Helge Wieggrefe