Carbon Border Adjustment Mechanism (CBAM)
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Carbon Border Adjustment Mechanism Main Challenges
Carbon leakage happens when companies shift production to countries with lenient climate regulations, thereby undermining global efforts to reduce emissions. To address this, the EU implemented the Carbon Border Adjustment Mechanism (CBAM) on October 1, 2023, through Regulation 2023/956. CBAM imposes a carbon cost on carbon-intensive imports, creating a more level playing field between EU industries and foreign producers operating under less stringent environmental standards. This mechanism helps deter carbon leakage and promotes the global adoption of climate policies by ensuring that imported goods face the same carbon costs as goods produced within the EU.
While CBAM has gained strong support within the EU and represents a major initiative to advance global climate action, it has posed several challenges internationally. In a letter to the European Commission, the International Chamber of Commerce (ICC) outlined challenges that companies face under the new regulation:
Accessing the CBAM reporting platform is complex due to decentralized access protocols that vary by Member State. Technical issues, including errors with commodity codes, have further complicated platform access and usability.
Filing reports is difficult due to unclear instructions, particularly around submissions by declarants on behalf of certifying signatories. The platform’s limited language options add to the challenge.
The low €150 de minimis threshold captures numerous low-volume transactions, raising compliance costs disproportionately, especially for smaller businesses. The requirements also place an undue burden on companies with low value/weight consignments, where a quarterly or simplified reporting option would be beneficial.
Companies struggle with the complex data requirements and calculation methods for embedded emissions, especially across global supply chains. Existing emissions calculation methods can only be used until the end of 2024, adding urgency for user-friendly guidance.
Importers face challenges obtaining required data from multi-tiered supply chains, especially from non-EU suppliers who may have privacy or data protection concerns, or who are unwilling to disclose certain information. A mechanism for direct data access by DG TAXUD could help address this.
Sensitive data required in the importer’s reporting sheet risks exposing confidential business information related to production processes, which exporters are reluctant to share.
The limited availability of default values during the transitional period increases reporting complexity. Extending their use could aid in compliance as companies adjust to CBAM requirements.
These challenges highlight the need for streamlined procedures, robust technical support, and clearer guidelines to facilitate CBAM implementation and reduce undue burdens on businesses.
