CBAM Update: Draft Implementing Regulation Published

Introduction

On June 13, 2023, the European Commission published a first call for feedback on the rules governing the implementation of the CBAM during its transitional phase. The draft implementing regulation (available here) details the reporting obligations and information sought from EU importers of CBAM goods, as well as the provisional methodology for calculating embedded emissions released during the production process of CBAM goods. The last date for providing comments thereto is July 11, 2023.

Key features of the draft regulation

• Calculation Methodology:
  • The draft regulation provides that the level of embedded emissions shall be calculated using one of the following methods (a) determining emissions from source streams on the basis of activity data obtained by means of measurement systems and additional parameters from laboratory analyses or standard values; (b) determining emissions from emission sources by means of continuous measurement of the concentration of the relevant greenhouse gas in the flue gas and of the flue-gas flow. Annex III of the implementing regulation contains further details on calculation methodology as well as identifies certain principles to be followed for effective monitoring.
• Flexibilities introduced for smooth transition:
  • Notably, the draft regulation allows a temporary derogation to the calculation methods prescribed therein for reporting embedded emissions for third country operators until end of 2024. This is provided that the operator is subject to a mandatory pricing scheme, an emission reduction project or compulsory emission monitoring scheme in their own country.
• Reporting Requirements:
  • Annex IV of the draft regulation sets out the kind of information that operators of installations must provide to CBAM declarants/importers. This information includes, inter alia, basic details about the operator, the specific direct embedded emissions of each good and production routes used. Annex IV also provides guidance on emissions reporting for specific goods according to the production route employed.
  • The draft regulation also sets out the information that must be provided when claiming a deduction on the number of CBAM certificates surrendered when a carbon price is paid in the country of origin. This information includes the form of carbon price; any rebate or other form of compensation available in the country that would have resulted in a reduction of that carbon price, specific amount paid, etc.
• Penalties:
  • The draft regulation proposes rules governing penalties for failing to report or making incorrect reports. The amount of the penalty, for each tonne of unreported embedded emissions has been proposed to be between EUR 10 and EUR 50.

Conclusion

While India does not presently have an emissions trading system in place, the Indian Parliament approved the Energy Conservation (Amendment) Bill on December 12, 2022, enabling the Government to set up a domestic carbon trading scheme. The draft implementing regulation may provide further guidance to the Indian Government as it formulates a carbon trading mechanism that the EU may accept for the purposes of deductions in the number of CBAM certificates for goods exported from India.

For more information on the CBAM, how it impacts India, and what steps can be taken by Indian exporters to soften the impact of the CBAM, do tune in to the ELP Trade Dialogue: CBAM Series available here – https://lnkd.in/dwqtBSjq.

We trust you will find this an interesting read. For any queries or comments on this update, please feel free to contact us at insights@elp-in.com or write to our authors:

Suhail Nathani, Managing Partner – Email – SuhailNathani@elp-in.com
Sanjay Notani, Partner – Email – SanjayNotani@elp-in.com
Naghm Ghei, Principal Associate – Email – NaghmGhei@elp-in.com

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion or advice. This document is not intended to address the circumstances of any individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.