What’s it all about?

The “transition phase” to the new CO2 border adjustment mechanism, or “CBAM” for short, has been running since October 2023. Importers of certain emission-intensive goods such as steel, iron, aluminium, cement, fertilisers, electricity and hydrogen must submit quarterly CBAM reports on the goods imported from other EU countries in the previous quarter and the CO2 emissions generated during the production of these goods  (for the background and how CBAM works, see our Insight). The CBAM reports are used to gather information for the start of the main phase of CBAM: from 2026, the pricing of reported CO2 emissions will gradually be ramped up. 

What can importers expect as from August 2024?

Until now, importers were allowed to use standard values published by the EU Commission for the CO2 emissions of the goods concerned in their CBAM reports. However, according to the current status of the CBAM Regulation and the CBAM Implementing Regulation, this was only possible until 31 July of this year. Since 1 August 2024, the actual emissions for all affected imports must be determined and reported in accordance with the calculation methods set out in the CBAM Implementing Regulation. 

To this end, importers must request the relevant information on the greenhouse gas emissions generated during the production of the goods from producers in other EU countries. This poses serious challenges for the companies concerned, as the required information must often be requested via several intermediaries due to global supply chains and because manufacturers simply do not provide the information.

This is no surprise given the highly complex calculation methodology and the even more complex Excel spreadsheet provided by the EU Commission to “facilitate communication” between importers and manufacturers. However, it is the importers who suffer, as they are the ones liable for failing to submit reports or for reports which are incorrect. They face fines of between EUR 10 and EUR 50 per tonne of CO2 which goes unreported.

Will the possibility of using standard values be extended?

The EU Commission has so far remained silent about the ongoing criticism regarding the problems described above. A few days ago, it put an end to the industry’s hopes for an extension of the option to use the standard values beyond 31 July 2024 in an announcement: The regulations for calculating actual emissions from 1 August 2024 are to remain in place and these emissions are to be determined and calculated accordingly.

In this context, the EU Commission also commented for the first time on the widely discussed situation of when importers are unable to report actual emissions data because the manufacturer does not provide the necessary information.

Importers subject to the reporting obligation should demonstrate that they have made all reasonable efforts to obtain the required data from their suppliers or manufacturers of CBAM goods. They should document this by submitting appropriate evidence together with their CBAM reports showing the unsuccessful efforts made to obtain the data from the suppliers or manufacturers.

How does the competent authority in Germany react?

The national competent authorities, which in Germany is the German Emissions Trading Authority (DEHSt), have a certain degree of discretion when reviewing CBAM reports. In a circular letter, the DEHSt announced that it would exercise this discretion in favour of importers in the following circumstances if standard values continue to be used instead of actual emissions data:

• The notifier has either demonstrated that it has done everything possible to report the actual emissions or has provided comprehensible justification that it has made all reasonable efforts to report the actual emissions and that further steps to determine the actual data would have required a disproportionate effort. 
• There are no further discrepancies in the report submitted.

Regarding the question of the proportionality of the effort involved, DEHSt has announced that it will take particular account of the relevance of the underlying CO2 emissions of CBAM imports. 

Outlook

Despite the EU Commission’s initial reaction to the obligation to use actual emissions data, there is still considerable uncertainty among the affected importers regarding the implementation of this announcement. In particular, there are no further indications as to when “all reasonable efforts” were made to obtain the actual emissions data. It remains to be seen whether the affected importers will be provided with more concrete evidence by the authorities.

If you have any questions about CBAM and the associated legal issues, we will be happy to assist you.

With the Taylor Wessing CBAM check you can find out whether you are affected by CBAM.