CBAM: How will it affect you?

From October 2023, the EU is expected to begin the process of taxing the carbon footprint of certain imported goods due to CBAM – the Carbon Border Adjustment Mechanism.

The framework is not yet finalised from the EU, and there are numerous uncertainties. On this page you can get a general idea of what we expect the framework to look like for aluminium, iron and steel. Other rules may apply for other materials.

What is CBAM?

CBAM, the Carbon Border Adjustment Mechanism, is a tool from the EU to tax imported goods based on their carbon footprint, just like goods produced in the EU are subject to a carbon tax.

According to the current timeline, CBAM will be gradually implemented in the EU starting from October 2023.

If your goods purchased through Alumeco are subject to CBAM, we will handle the reporting for you.

The aim of CBAM is to avoid “carbon leakage” – the practice of outsourcing carbon intensive production to other parts of the world to avoid punitive measures in the EU.

CBAM is a key component in the EU’s “Fit for 55” plan, which is a roadmap to reduce carbon emissions from the EU with 55 % by 2030. The end goal, laid out in the European Green Deal, is to be carbon neutral by 2050.

Does CBAM affect you?

If you import aluminium, iron and steel from countries outside the EU, CBAM applies to you.

These are goods where the risk of carbon leakage is deemed high, and the list will be expanded as the framework is implemented.

If the country of origin is part of EU ETS, CBAM will not apply. Norway, Iceland, Liechtenstein and Switzerland are all part of EU ETS, and so are tax free areas such as Büsingen Helgoland, Livigno, Ceuta and Melilla.

At this stage in the negotiations, it looks like carbon taxes paid in a third country can be deducted from CBAM. How or if this will be implemented in the final version is too early to say.

On any materials bought through Alumeco, we will handle CBAM for you. Our legal team is following the legislation process closely and will stay up to date on the regulations at any time.

When do you need to act?

The test phase is expected to begin October 1st, 2023, and be fully implemented by January 2027. However, this timeline may change.

During the test phase, you will be required to submit a report of the carbon footprint for any goods subject to CBAM, but you will not be paying the CBAM tax. On any goods purchased through Alumeco, we will take care of the reporting for you.

The first deadline for submission of data is currently expected to be in January 2024, accounting for the period from October 1st, 2023, to December 31st, 2023. But this may change in the final agreement.

What do you need to do?

If you purchase goods through Alumeco that are subject to CBAM, we will submit the necessary paperwork for you. The guidelines for this paperwork are not yet finalised, but the EU or national authorities are expected to provide guidelines in due time.

As of right now, they are expected to include information on:

  • The amount of imported goods subject to CBAM
  • The combined direct and indirect emissions from the production of the goods (if this information is not available, the EU is expected to provide a benchmark value for use in the calculation)
  • Information on any carbon taxes already paid in a third country

At a later stage in the implementation process, this report will most likely need to be verified by a qualified third party.

How does the CBAM tax work?

The specific framework is still to be determined, but it is expected to be based on certificates.

The expectation is that in order to import goods that are subject to CBAM into the EU, you would need to have corresponding CBAM certificates in a designated CBAM account. These certificates would be handled by a CBAM office, which is yet to be set up.

How much will CBAM cost?

The price is expected to be dynamic and increase as the total carbon emissions go up. This means that, if the system is based on certificates, both your own indirect emissions – how many certificates you need – and the overall emissions – how many certificates are sold in total – will affect the price.

How is the EU calculating the carbon footprint of your goods?

The details of the calculation are yet to be decided, but a distinction between “complex goods” and ”simple goods” will be made.

We expect that our customers’ imported metals will be considered simple goods, and the price will then be determined by:

The emissions from simple goods = The emissions from the production / the amount of goods produced

A database with benchmark data will be available if the specific values are either unknown or unobtainable.

How to avoid or reduce CBAM

CBAM is expected to apply to the specific carbon emissions from materials imported into the EU. This means that by purchasing materials from inside the EU or purchasing carbon reduced imported goods, you can limit or avoid CBAM.

If you want to learn more about your options, your Alumeco sales contact will be happy to discuss this.