The European Union has announced a provisional agreement on changes that would exempt most importers from compliance with its carbon border adjustment mechanism. The agreement must now be endorsed by the Council and the European Parliament before formal adoption, which is expected by September.
CBAM requires importers of covered products (currently iron and steel, cement, aluminum, fertilizers, electricity, and hydrogen) into the EU to pay the difference between the carbon price paid in the country of production and the price of carbon allowances under the EU’s Emissions Trading System. CBAM rules were applied from Oct. 1, 2023, but with a three-year transition period where importer obligations are initially limited to reporting. CBAM levies are expected to be phased in between 2026 and 2034 in conjunction with the phasing out of free allowances under the ETS.
According to a press release, the key aspect of the new CBAM simplification proposal is an exemption from CBAM obligations for companies that do not exceed a single mass-based threshold of 50 tons of imported goods per importer per year. The press release notes that while this change would reduce the regulatory and administrative burden of CBAM, as well as compliance costs for EU companies, especially small and medium-sized enterprises, about 99 percent of emissions in affected imports would still be subject to CBAM obligations.
The proposal also contains several simplifications for all importers of CBAM goods above the 50 ton/year threshold, including with respect to the authorization procedure, data collection processes, calculation of embedded emissions, emission verification rules, calculation of authorized declarants’ (parties wishing to import goods subject to the CBAM) financial liability during the year of imports into the EU, and claims by authorized declarants for carbon prices paid in third countries.
The press release states that these changes are a necessary first step before a more comprehensive review of CBAM, which will be carried out later this year and will be accompanied by a legislative proposal extending CBAM to downstream products and introducing additional anti-circumvention measures.
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