Just another levy, or a sustainable opportunity for UK companies?
The Carbon Border Adjustment Mechanism (CBAM), has been introduced as part of European Union’s 2050 climate neutrality measures. The aim of CBAM is to establish an internal ‘cost’ to the EU’s embedded carbon in the production of certain energy intensive products. This, in-turn enables a suitable levy to be placed against goods imported from outside the EU, thereby ensuring an equal cost comparison on products and to reduce what the EU calls ‘Carbon Leakage’.
CBAM is intended to encourage importers to either; use factories based within the EU, or choose international suppliers that can provide proof of carbon neutral operations or low carbon emissions.
When does it come in?
CBAM is here already, but is arriving in two phases.
- Phase 1 Transitional Period – 1st October 2023 to 31st December 2025
- Phase 2 Definitive Period – 1st January 2026 onwards
As with all major changes, businesses that prepare for the impact during the transitional phase are likely to be better set up to navigate and even benefit from it.
What products are affected by CBAM?
CBAM is currently based around 6 product groups, with emphasis on those requiring high levels of energy intensity to process or manufacture. They are:
- Cement
- Hydrogen
- Fertilisers
- Iron and Steel
- Aluminium
- Electricity
Note: The EU has advised it is currently looking at other commodities it may choose to introduce the CBAM charge to, this includes kaolinic clay which is used in the manufacture of ceramic products.
This straightforward list doesn’t exactly tell the full story. Broadly speaking, it applies to raw and processed materials, but not to most complex, finished goods.
How can I find out what items are affected by CBAM in my business?
Each sector will have nominated Combined Nomenclature (CN) codes CBAM will be chargeable on. The CN code is the first 8 digits of the EU commodity code. If you’d like some guidance on this, get in touch via the form below and one of our experts will be in touch.
What does this mean for companies operating in the UK?
If you’re selling to the EU, and your commodity falls within the selected codes, you’ll be required to provide reporting information. There are some exceptions, such as goods for use by EU military authorities, or goods valued under €150, for example.
It was recently announced the UK will be establishing its own CBAM. Very similar to the EU CBAM but with differences on the chargeable sectors; the UK will not be charging for electricity, but it will be charging for Ceramics and glass.
The UK Government recently conducted a consultation seeking comments and feedback regarding the UK CBAM. The consultation closed 13th June 2024 and we are currently waiting for the report based on the answers given.
UK CBAM is expected to be introduced in 2027 and full details on how UK CBAM will be implemented and the full list of products that will be affected by CBAM released in 2024
Will CBAM work?
It’s clear that a lot of work has gone in to setting up CBAM and it is the best operational mechanism to date for levelling the playing field for companies investing in lower carbon production. The phased introduction allows scope for adjustment as the EU learns from initial feedback, so it’s difficult to say what it will look like in 5 years’ time. As UK equivalent legislation generally follows suit to minimise trade barriers, we might expect a trade agreement to be established at some point. If you’re looking for the opportunities, it would be fair to assume that sourcing materials from closer to home, lowering the carbon intensity of operations and, at least ensuring you are keeping detailed and accurate records of direct and indirect emissions within your products, will stand you in good stead!
What should I be doing to prepare for CBAM?
- Check the full list of EU CN codes to see if your current products could be affected by CBAM and require CBAM reporting. Look to see if your goods may meet exemption status.
- CBAM is calculated on direct and indirect embedded carbon emissions, you may need to contact your own suppliers to check the emissions amount within the supplied materials.
- Establish and keep detailed records of direct and indirect emissions within your products. You may not need to report on imports into the EU, but your customers might, and they will be seeking information from you
- Ensure you submit timely and accurate reports
- Stay up to date with regulations and requirements
- Keep checking in with us for updates for both EU and UK CBAM
- Attend webinars like THIS ONE provided by International Trade Matters. Check the website for dates of future events.
How do I find out more?
Rachel and the specialist team are available to discuss CBAM and all things International Trade with you. To arrange an initial discussion about how we might be able to help, get in touch via the form below or call +44 (0) 333 7722 565