CBAM – the customs revolution in Europe

The scope of the new obligation

The regulation proposed by the EC applies not only to the new method of setting customs duties, but also to the entire infrastructure changing the way of importing certain goods. The new Regulation introduces:

1. a new institution of authorized notifiers,
2. definition of direct and embedded emissions,
3. so-called CBAM certificates,
4. annual CBAM reporting.

The scope of the Regulation covers a group of high-emission products. These goods include, among others:

• cement,
• electricity,
• chemical fertilizers,
• cast iron and steel,
• aluminum,
• m the above-mentioned.

The new obligations are to cover all of the above-mentioned products from third countries, with the exception of Switzerland, Liechtenstein, Norway and Iceland. The transitional period of the new mechanism begins in October 2023. In 2024-2025, the obligations of selected importers are to be limited to annual CBAM reporting.

From January 1, 2026, it will be necessary to purchase CBAM emission certificates.

Authorized notifier

Goods covered by the new regulation will be allowed to be placed on the market in the EU only by the so-called authorized notifiers. This new entity in customs law will be able to apply for release for free circulation of goods covered by the Regulation.

Therefore, the import of key goods for the economy will be possible only after the consent of the customs authority in the form of an administrative decision. At the same time, the notifier must submit a statement in which he/she proves that:

• has not committed serious and repeated breaches of customs law, tax law and market abuse legislation, and has no record of serious business offenses in the 5 years preceding the year of application,
• has the appropriate financial and operational capacity to meet the customs and tax obligations under the Regulation.

In addition to the statement, as part of the application for marketing authorization, the notifier will have to indicate:

• name, addresses and contact details;
• the economic operator's registration and identification number ("EORI number") in accordance with Article 9 of Regulation (EU) No 952/2013;
• an indication of the main economic activity conducted in the UE;
• a certificate from the tax authority in the Member State where the notifier is established that the declarant is not subject to an outstanding domestic tax recovery order;
• information necessary to demonstrate the notifier's financial and operational capacity to fulfil its obligations under this Regulation and, if the competent authority has so decided on the basis of a risk assessment, documents supporting this information, such as a profit and loss account and a balance sheet for up to the last three financial years budgetary which accounts have been closed;
• the estimated monetary value and volume of imports of goods into the customs territory of the Union, by type of goods, for the calendar year in which the application is made and the following calendar year;
• where applicable, the names and contact details of the persons on behalf of whom the notifier is acting.

The notifier's condition should be monitored on an ongoing basis. If any factors change the content of the information submitted in the application, the notifier should immediately inform the authority to which the application was submitted. If the customs authority considers that the above conditions are not met, it refuses to authorize the declarant to release high-carbon goods into the EU.

Once an authorisation has been granted to the notifier, the competent customs authority also assigns a unique CBAM account number. The CBAM account is to be used to record transactions on the so-called CBAM certificates.

CBAM certificates

The relevant customs authorities will sell CBAM certificates to authorized notifiers. The purchased CBAM certificates will be redeemed in the amount corresponding to the emissions declared by the authorized notifier. The number of certificates to be redeemed may be reduced by the appropriate value of emission fees paid in the country of the exporter. Surplus certificates may also be redeemed at the request of the notifier by the customs authorities.

Notifiers must remember that certificates cannot be stored for more than 1 year. Pursuant to the draft provisions, by 30 June each year, the competent authority of each Member State will cancel all CBAM certificates that were purchased in the year before the previous calendar year, and which remain in the national register on the account of authorized notifiers in a given Member State.

The method of calculating the amounts of embedded emissions and the related amounts of CBAM certificates has been developed in Annex 3 to the Regulation.

CBAM certificates are therefore intended to reflect intra-EU ETS emissions trading. Similarly to the ETS, for CBAM it will also be necessary to keep relevant records and submit cyclical declarations.

CBAM declaration and records

Each authorized notifier is obliged to keep appropriate records of high-carbon goods introduced into the customs territory of the Community. As part of the CBAM registries, notifiers should collect data to calculate the amount of emissions embedded in imported products.

The authorized notifier should also keep documentary records to prove that the declared greenhouse gas emissions that were incorporated into the goods were subject to an emission tax in the country of origin of the goods. In addition, the notifier shall keep evidence of actual payment of a greenhouse gas emission tax that was not subject to export rebates or other forms of export compensation.

The data collected in the records should allow for the preparation of CBAM declarations. The CBAM declaration should be submitted by May 31 for the calendar year preceding the year in which the declaration was submitted.

The CBAM declaration contains the following elements:

• the total quantity of each type of goods imported in the calendar year preceding the year in which the declaration is made, expressed in megawatt hours for electricity and in tonnes for other goods;
• total embedded emissions, expressed in tonnes of carbon dioxide equivalent emissions per megawatt-hour of electricity or, for other goods, in tonnes of carbon dioxide equivalent emissions per tonne of each type of goods;
• the total number of CBAM certificates - corresponding to the total amount of embedded emissions - to be surrendered for redemption after the reduction of the greenhouse gas emission fee paid in the country of origin and the necessary adjustment of the extent to which allowances under the EU ETS are allocated free of charge.

Before the authorized notifier submits the CBAM declaration, he/she should provide data on the volume of embedded emissions for verification by the so-called accredited verifiers.

Administrative penalties

The new regulation also provides for the introduction of severe administrative penalties for both authorized notifiers and ordinary importers. Any person who fails to surrender CBAM certificates for redemption in the number corresponding to the embedded emissions related to the goods shall be subject to a penalty corresponding to the increased penalty for exceeding the emission in accordance with Art.16 Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community.

In addition to the above-mentioned sanctions, in case of failure to comply with the provisions of the CBAM Regulation, national sanctions provisions and penalties under EU customs law will apply. In Poland, the provisions of the Penal and Fiscal Code apply accordingly in this regard.

See also: CBAM - support for customs agencies

Summary

The approval by the European Parliament of the Regulation introducing the Carbon Border Adjustment Mechanism (CBAM) is a breakthrough moment for Europe in the fight against carbon dioxide emissions. CBAM introduces a new way of determining the duty at EU borders, taking into account CO2 emissions and includes a group of high-emission products imported from third countries.

The changes introduced by CBAM have far-reaching consequences for the functioning of the entire market, and also introduce new obligations for traders, such as the requirement to obtain authorization from the customs authority and CBAM certificate. The introduction of CBAM is also a step towards achieving climate neutrality by the European Union, as well as attracting investments in sustainable development, which is an opportunity for further development of the European economy.

EUR-Lex - 52021PC0564 - PL - EUR-Lex (europa.eu)

How can we help?

From 31 January

We provide comprehensive support in fulfilling CBAM reporting obligations:

• We verify which goods are subject to the new obligations,
• We identify the obligations arising from importing these goods,
• We prepare instructions for third country suppliers containing the obligations and the scope of data required,
• We prepare a database to collect information for reports,
• We keep records of CBAM,
• We prepare quarterly CBAM reports,
• We provide ongoing support and advisory services for CBAM reporting.

Learn more: CBAM reporting

CBAM consultation Szymon Lipiński, Tax Consultant  Book a meeting