CBAM - new reporting requirements from 1 August 2024

Szymon Lipiński, Tax Consultant, Crowe Poland

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The CO2 Border Adjustment Mechanism (CBAM) introduced new obligations for importers of goods into the European Union. From 1 October 2023, a transitional period began during which entrepreneurs must submit quarterly reports on emissions related to imported products.

Proper CBAM reporting requires close cooperation with suppliers, as importers must obtain detailed information about the emissions of goods covered by CBAM reporting from them. Failure to comply with reporting obligations may result in financial sanctions or even suspension of imports.

Read the following article, in which we presented the conclusions after 9 months of the CBAM procedure, as well as:

New obligations that apply to importers from 1 August 2024
Exchange of information between supplier and importer
Communication with suppliers from third countries
Due diligence reporting information
Monetary sanctions for failure to perform duties

See more: CBAM reporting | Crowe Poland

CBAM reporting - key findings after 9 months of the procedure

In the transition period, during the initial phase of the CBAM reporting procedure, importers encountered many obstacles, in particular technical problems with the CBAM Interim Register, a dedicated reporting platform. The inconveniences associated with the use of the platform resulted in limited access to its functionalities, which significantly complicated the timely submission of the first report.

Due to technical problems that arose during the transition period, the European Commission extended the deadline for the CBAM reporting obligation, which was initially to be fulfilled by 31 January this year. No sanctions have been imposed on importers who have encountered problems with timely submission of the report due to technical issues.

International Chamber of Commerce (ICC) Open Letter

In order to meet the inconveniences that have arisen during the transition period, the International Chamber of Commerce (ICC) has sent an open letter to the European Commission, taking into account the following demands:

Ability to report outside the CBAM portal
Postponement of the deadline for reporting default values until the end of 2025
Simplification of the information exchange and flow system

Moreover, during the transition period, importers observed a reluctance of suppliers and operators from third countries to share information on their own productions that are related to greenhouse gas emissions. In an attempt to address this inconvenience, the ICC proposed that importers from third countries submit information taking into account greenhouse gas emissions directly to the CBAM portal.

CBAM reporting - importers' obligations from 1 August 2024

From 1 August 2024, importers are obliged to report the emission intensity of imported goods according to actual data from the manufacturer. This is much more difficult than the previous model, which is based on default values.

Learn more: CBAM reporting becoming more difficult | Crowe Poland

CBAM reporting - principles for determining actual data

The method of calculating the embodied emission quotas and the associated quantities of CBAM certificates is presented in Annex 3 to the CBAM Regulation.

The scope of data necessary to determine emissions depends, among others, on the category of imported goods, the adopted production paths in a given factory, precursors or production boundaries. A different method of measuring emissions should be used for each of them.

As a rule, the data that are used for reporting must be determined by the providers. Once established, the methodology for reporting emissions should not be changed in the future. This can only happen in justified cases. Operators are obliged to choose the most accurate methods of measuring emissions identified by the Commission, and then improve and continuously review them (where justified).

Supply chain mapping - in which case is reporting by default values possible?

Some importers will still be able to use the option to report emissions by default. According to Article 5 of the Implementing Regulation, the CBAM may base up to 20% of the total embodied emissions from composite commodities on the basis of estimates made available by the operators of the installations. However, this is for specific cases and the determination of emissions from precursors plays a key role.

If the precursor (the intermediate used in the production of imported products) carries more than 80% of embodied emissions, this will allow the direct supplier to report the remaining 20% of emissions at default values. So, understanding where the precursors are formed and what is the main source of emissions is the most important step when it comes to reporting emissions from 1 August.

Importantly, the aforementioned limit of default values can be used without a time limit. Therefore, as long as the CBAM implementing regulation is in force in its current form, importers can indicate 20% of emissions according to default values.

CBAM Reporting - Proxy Emission Measurement Methods

Alternative methods of measuring emissions include:

A carbon pricing system at the location of the installation, or
Mandatory emission monitoring system at the site of the installation
An installation emission monitoring system, which may include verification by an accredited verifier

These methods can only be used until the end of 2024.

CBAM reporting - amendment to laws and the future

Amendment to national laws - in the third quarter of 2024, the Council of Ministers plans to adopt a draft amendment to the Act on the Management of Greenhouse Gas Emissions and Emissions Trading. The draft regulations entrust the role of the competent authority in CBAM matters to the National Centre for Emissions Management (KOBiZE)
Amendment to the Acts of 17 July 2009 on the System for Managing Emissions of Greenhouse Gases and Other Substances (Journal of Laws of 2020, item 673, as amended, "USZE") and of 12 June 2015 on the Greenhouse Gas Emission Allowance Trading System (Journal of Laws of 2023, item 589, as amended, "USH")
The European Commission also plans to review the CBAM law in the first quarter of 2025
It can also be expected that from 2027 the scope of goods covered by the CBAM will be significantly expanded. Certain indications on the scope of goods that may be covered by the CBAM are provided by Commission Delegated Decision (EU) 2019/708 of 15 February 2019 supplementing Directive 2003/87/EC of the European Parliament and of the Council as regards the designation of sectors and subsectors deemed to be at risk of carbon leakage in the period 2021-2030 (DELEGATED COMMISSION DECISION (EU) 2019/708)

Exchange of information between supplier and importer

Effective cooperation and exchange of information between suppliers and importers is key to meeting regulatory requirements. The most important aspects in this regard are:

Continuity - the process of sharing data from the importer should be permanent (not one-off), which affects the diligence of reporting
Onboarding of importers - obtaining data from importers about the locations of the plants where the goods are produced, which can then be included in contracts or annexes to contracts

The exchange of information between the supplier and the importer can also take place using an Excel file provided by the European Commission. However, for many providers, this solution seems complicated, due to the large amount of data exchange that the above-mentioned file obliges.

Due diligence in CBAM reporting – what aspects should you pay special attention to?

The scope of unreported information, i.e., a comparison of what has been reported with what should be reported, based on actual values
Unreported quantities of imported goods and unreported emissions related to these goods, resulting from reporting based on default values (these are not as detailed as actual values)
Willful misconduct or negligence on the part of the reporting obligator, for example reporting only on the basis of default values, which may be perceived by the European Commission as a reluctance to invest in reporting based on actual values
Willingness of the reporting person to comply with the request for information or to correct the CBAM report. In this case, the issue of reporting based on default values arises again - when creating this type of report, there is a risk of its correction, which will be required by the European Commission
Previous activities of the reporting entity in terms of compliance with the reporting obligations. Aspects such as timely submission of CBAM reports in the first period, i.e., by 31 July 2024, are taken into account
The level of cooperation of the reporting person to stop the infringement. The Commission shall analyse whether the reporting person has voluntarily taken action to ensure that similar breaches do not occur in the future

CBAM reporting - monetary sanctions for failure to perform obligations

Importers should prioritize compliance with CBAM reporting requirements to avoid financial penalties and other negative consequences, which include:

EU sanctions – up to €50 fine per tonne of unreported emissions
National sanctions – presumably, an administrative fine of PLN 50,000 – the same as in the case of sanctions for failure to submit EU ETS reports. The CBAM Regulation obliges EU Member States to impose sanctions on importers similar to those in the EU ETS. Details of the sanctions will appear with the publication of the above-mentioned Emissions Trading and Emissions Trading Scheme.

Pursuant to Article 189d of the Code of Administrative Procedure, when imposing an administrative fine, the public administration authority takes into account, among others:

Gravity and circumstances of the violation of the law
Frequency of past failure to comply with an obligation or violation of a prohibition of the same type
Previous punishment for the same conduct for a felony, fiscal offense, misdemeanor or fiscal misdemeanor

If the violation of the law occurred as a result of force majeure, the party is not subject to punishment.