The EU’s Carbon Border Adjustment Mechanism (CBAM) comes into effect on October 1, 2023. This will be the beginning of CBAM’s “transitional phase” which will require companies to report on embedded carbon in imported products. This phase will last until the end of 2025, when new obligations under the law will come into effect. In anticipation of the law coming into force, the European Commission adopted new reporting rules and guidance to help companies comply with this phase of CBAM. ESG Today recently reported on these new rules stating that:
“Under the newly adopted rules, importers will be required to report on the embedded emissions of goods imported into the EU, with information including the country of origin of the goods, the installation where the goods were produced and the geographical coordinates of the main emissions source of the facility. Importers will be required to report on products’ direct emissions, including through the production process of the goods expressed as CO2e per tonne, and on indirect emissions, with information including the electricity consumption of the production process.”
In the initial phase, these requirements will only apply to products from specific carbon-intensive sectors. ESG Today identifies the following as subject to disclosure during the transition period:
“carbon intensive sectors, including iron and steel, cement, fertilizers, aluminum, electricity, hydrogen, and some downstream products such as screws and bolts, as well as to some indirect emissions under certain conditions.”
The requirements will broaden in 2026 and imports will be taxed on their embedded emissions. While the law is designed to incentivize countries to adopt carbon taxes, CBAM is not expected to have a large impact on the US economy and is unlikely to influence US policy. However, companies importing targeted products into the EU and those doing the exporting should be aware of the law and its potential impacts for their business.