Alerts & Updates 18th Aug 2023

CBAM Compliance Alert: Latest Developments in Reporting Regulations

Authors

Sanjay Notani Partner | Mumbai
Naghm Ghei Principal Associate | Delhi NCR

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  • Introduction

    On August 17, 2023, the European Commission adopted an implementing regulation (Regulation) concerning the reporting obligations for the carbon border adjustment mechanism. The Regulation and accompanying annexes set out the reporting obligations for EU importers, as well as the provisional methodology for calculating embedded emissions.

  • Required Information in CBAM Reports

    As per the Regulation, reporting declarants (i.e. importers of CBAM covered products) need to provide information on a quarterly basis covering:

    • Quantity of goods imported (expressed in megawatt hours for electricity and tonnes for other goods).
    • Type of goods identified by their CN code.
    • Information on Embedded Emissions, including:
      • Country of origin of imported goods.
      • Production installation data including UN/LOCODE, installation name, address, English transcript, and geographical coordinates of the main emission source.
      • Production routes used, reflecting technology and specific parameters.
      • Specific embedded direct emissions of goods as CO2e per tonne.

    Annex I sets out further information on reporting formats for importers.

    Further, Annex IV sets out the content of the recommended communication from operators of installations to reporting declarant, including sector-specific parameters to be included in the communication.

    The 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, the specific amount paid, etc.

  • Calculation Methodology

    The Regulation provides that the level of embedded emissions shall be calculated using one of the following methods:

    • Determining emissions from source streams on the basis of activity data obtained by means of measurement systems and calculation factors from laboratory analyses or standard values;
    • 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 Regulation allows a temporary derogation to the calculation methods prescribed therein for reporting embedded emissions for third country operators until the end of 2024. The following methods may be used provided they provide similar results to the above-prescribed calculation methodology:

    • A carbon pricing scheme where the installation is located, or
    • A compulsory emission monitoring scheme where the installation is located, or
    • An emission monitoring scheme at the installation which can include verification by an accredited verifying body.
  • Penalties

    The 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.

  • Important Reporting Dates

    The first report during the transition period is due by January 31, 2024, covering goods imported during Q4 2023 and the final report is due by January 31, 2026, covering goods imported during Q4 2025.

  • Conclusion

    With the official enactment of the implementing regulation and the rapidly approaching commencement date for reporting obligations, it is imperative that producers and exporters of the designated goods to the EU take proactive steps. They should be prepared to furnish their importers with essential information, facilitating the creation of thorough reports throughout the ongoing transition phase. The meticulous and timely provision of data by businesses holds significant importance, given that the outcomes observed during this transition period are poised to reverberate into the eventual protocols governing the CBAM once this transitional stage concludes.

    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:

    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.