The Carbon Border Adjustment Mechanism
A new, green way of pricing carbon in imports to the EU

Gerassimos THOMAS
Director-General for Taxation and Customs Union
European Commission

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What is the aim?

Prevents carbon leakage
to ensure effectiveness ofEU climate policy

Complements andreinforces the EU ETSContributes to decarbonisation
globally and to reaching EU
climate neutrality by 2050

#EUGreenDeal

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How do we do this?

Mirror EU carbon pricing
through new mechanism
for imports into EU

Addressed to companies, notcountries, based on actual carbon
content of imported goods

Aligned with EU’s international
policies and legal commitments,including WTO compatibility

Focus on carbon-intensive
sectors

Takes into account carbon price effectively
paid by third-country operator

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What are the sectors in scope?

IRON & STEELALUMINIUM

CEMENTFERTILISERHYDROGEN

ELECTRICITY❑ Selected on the basis of 3 criteria:✓ High risk of carbon leakage (high carbon emissions; high level of trade)✓ Covering large share of greenhouse gas emissions of EU ETS sectors✓ Practical feasibility❑ Exclusions (under 150 € / countries linked with the EU ETS)
❑ In the future, scope may be extended to a limited list of ETS sectors at risk of carbon leakage (such asrefineries and chemicals), provided that such an extension is justified based on selected criteria

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Gradual implementation of CBAM
Post-transitional period
January 2026 onwards

Transitional period
October 2023 - December 2025

2023

Monitoring and reporting(Implementing Regulation (EU)2023/1773)

2024

2025

Review 2025
• Assessment feasibility / proportionality of scope
extension post 2026, including to• a limited set of EU ETS sectors at risk ofcarbon leakage (e.g. refineries/ chemicals);• a selected number of downstream products
which contain a high share of basic CBAMgoods;• indirect emissions• Impact on LDCs
• Progress in international climate discussions

2026

Start of gradual phase-in ofCBAM/phase-out of free ETS
allocation

6Sectors at risk of Carbon leakage considered for possible extension• Priority ETS sectors for assessment of CBAM extension:• Refined petroleum products• Organic basic chemicals• Other ETS sectors include: Lime, Pulp and paper, Glass,…
• Criteria for inclusion will include:➢Practical feasibility➢Share of emissions covered#EUGreenDeal

7What is the scope for emissions during the transitional period?
In CBAM scope
Not in CBAM scope

SCOPE
2
IndirectElectricity consumed for theproduction of CBAM goods

Raw materials,
transportation and distribution,
previous waste, etc.

SCOPE
1
DirectSCOPE
3
Indirect

Emissionsgenerated fromthe productionof CBAM goods
at installationlevel (1)Input material under CBAM scope(in the case of complex goods)

Upstream

SCOPE
3
Indirect

Consumption, transportation anddistribution and end of life

Company production

Downstream#EUGreenDeal(1) Direct emissions include emissions from the production of heating and cooling, even if that production takes place outside the installation.

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CBAM factor (i.e. percentage of benchmark level)

Phasing-out of free allocation and phasing-in of CBAM
100%

2.5%

5.0%

90%

10.0%

80%

22.5%

CBAM

70%
60%
48.5%
50%
40%
30%

Free ETS
allowances

61.0%
73.5%

20%

86.0%

10%
100.0%
0%
2026

2027

2028

2029

2030

2031

2032

2033

2034

Year
#EUGreenDeal

9Calculation of the adjustment
Number ofcertificates
Actualembeddedemissions

Emissionscovered by freeallocation

Amountof goods

Price ofcertificates

Obligation andadjustment

EU ETS
price

CBAM
Obligation
Carbon priceeffectively paidabroadAdjustment#EUGreenDeal

10Objectives of the transitional period• The transitional period is a learning phase for all:•••Understanding respective roles and tasks
Collection of information
Facilitate smooth roll-out of the mechanism after the 2025

• The information collected will allow the European Commission to further specify andfinalise the methodology and find synergies with existing monitoring schemes• The information collected will feed into the review of the mechanism by 2025 andprovide further clarity of the functioning• Reporting flexibilities reflect the above and aim to introduce openness and balancing
a smooth introduction with information needs

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Flexibilities for the calculation of embedded emissions• Until 31 July 2024, for each import of goods for which the reporting declarant does nothave all the information listed in Article 3(2), the reporting declarant may use otherreferenced methods for determining the emissions, including default values• Until 31 December 2024, other monitoring and reporting methods may be used, if
they lead to similar coverage and accuracy. They could be based on:• a carbon pricing scheme where the installation is located, or• a compulsory emission monitoring scheme where the installation is located, or• an emission monitoring scheme at the installation which can include verification by anaccredited verifier• Without time limit, use of estimations for up to 20% of the total embedded emissionsof complex goods

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How to submit a report?

Who is responsible
for the reporting?

• The reporting declarant• Same as the authorised CBAM declarant but notauthorisation needed yet

How to submit areport?

• Gain access to the CBAM transitional registry – request log-in
via portal• Fill out mandatory fields in the registry• Indicate if reporting is by importer or on behalf of an importer• Submit the report no later than 1 month after the quarter

Is there flexibility
for the submission?

• Yes – A report can be modified 2 months after the reportedquarter• For the first two CBAM reports (due Jan and April 2024)
modification is accepted until July 2024 (deadline of third report)• After the deadlines possibility to request reopening for correction(IA-Article 9-3)13What to submit?

Role of thirdcountry
operators ofinstallations• Monitor and collect data on embedded emissions –Possibility to use
templates and guidance docs provided by the Commission• Communicate data to reporting declarants – Possibility to use templates
provided by the Commission• Is verification needed: Not yet!

Whatinformation isnecessary to becommunicatedfor the reporting• Information on the goods: Quantity / Type identified by CN code (8DIGIT) / Country of origin• Info on the installation: Company name / Address / Location / Geocoordinates• Info on the production: Routes / Parameters• Information the emissions: Specific direct and specific indirect• Information on carbon price paid at production country (also forprecursors)

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Guidance and support by the Commission
TrainingGuidance• E-learning (General and sector-specific)• Webinars (General and sector-specific)
Tailored guidance documents for:• Producers in third countries• Reporting declarants

Templates

Excel-based template to facilitate data collection
and information exchange

Dedicated information portal

Launch of dedicated Commission website withall information, Q&A and “how to find” guidance

IT reporting interface –transitional registry• Dedicated IT interface for reporting of information• Detailed guidance for users

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CBAM is an internationally open mechanism
CBAM is open to decarbonisation efforts in third countries and favours
international coordination thanks to a five-tier system:
1. Actual emissions methodology – CBAM is based on embedded emissions of theimported good
2. Deduction of the carbon price paid in third countries from the adjustment on imported
products
3. Countries applying EU ETS or linked to it will be excluded
4. Special rules on electricity for countries whose electricity market is “coupled” with the Union
internal market for electricity#EUGreenDeal

16International cooperation framework❑ CBAM can be complemented by bilateral,multilateral and international cooperation withnon-EU countries

CBAM❑ Establishment of a dialogue between countries
with carbon pricing instruments❑ Building on other initiatives (G7’s “ClimateClub”, OECD’s “Inclusive Forum for Climate
Mitigation Approaches”

GlobalCarbon
Pricing
Climateinitiatives→ Paving the way for ambitious climate policies
and global carbon pricing#EUGreenDeal

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Where to find further information on CBAM?
Visit the CBAM webpage regularly – our one-stop shop
https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en▪
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Link to the CBAM Transitional Registry
2 guidance documents
Communication template between importers and operators
Registration to dedicated webinars
Links to recordings of webinars through the Customs and Tax EU Learning portal
Link to our E-learning materials through the Customs and Tax EU Learning portal
Q&A and factsheet#EUGreenDeal