The CSRD isn’t the only sustainability regulation undergoing “simplification” in the EU. A number of other regulations are being addressed through omnibus proposals, including the Carbon Border Adjustment Mechanism (CBAM). CBAM was designed to apply an embedded carbon tax on importers of specific goods. The idea was to align the import tax with the EU Emissions Trading Scheme so that domestic producers would not be disadvantaged. However, the European Council and Parliament reached a political agreement scaling back those ambitions. CBAM’s scope will be drastically scaled back by exempting 50 tonnes of embedded carbon per importer per year. Linklaters writes:
“This new threshold is expected to eliminate CBAM obligations for approximately 182,000, or 90 per cent, of importers, many of which are small and medium-sized enterprises (SMEs). The adjustment is anticipated to save around €1.12 billion in administrative costs while still covering over 99 per cent of emissions. The Parliament also noted in its press release that safeguards have been included to ensure this figure and to prevent circumvention of the rules.”
Much of the EU’s simplification measures focus on reducing the compliance burden placed on SMEs. These SMEs often make up a majority of market participants, but account for less overall emissions. Hopefully, the changes to CBAM will still enable the core objectives of the legislation while cutting down on compliance costs. Ultimately, these reforms are less contentious than the negotiations surrounding CSRD, CSDDD, and the Green Claims Directive. Formal adoption of the CBAM simplification is expected in September.
Our members can learn more about carbon management regulations here.
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