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CBAM explained for Asian exporters shipping to the EU

CBAM explained in one line: it is an EU system that makes importers report the carbon emissions built into certain goods, and later pay for them. If you export steel, aluminium, cement, fertiliser, hydrogen or electricity to the EU, the first stage is already running.

What CBAM is and why the EU built it

CBAM stands for Carbon Border Adjustment Mechanism. It is set out in EU Regulation 2023/956, which entered into force on May 17, 2023.

The EU already charges its own factories for carbon through its Emissions Trading System. Without a border rule, a buyer could import the same product from a place with no carbon price. That would move emissions abroad instead of cutting them. The EU calls this carbon leakage. CBAM aims to give EU and foreign producers the same carbon cost signal.

The EU is also phasing out the free emission allowances that some of its own industries receive, as CBAM comes into full use.

Sources: European Commission, Taxation and Customs Union, "Carbon Border Adjustment Mechanism"; Regulation (EU) 2023/956, EUR-Lex.

Which goods are covered

The rule starts with six groups of goods: cement, iron and steel, aluminium, fertilisers, electricity and hydrogen. The regulation lists them by customs code in Annex I. The list also reaches some goods made from these materials, such as certain steel articles.

The EU chose these sectors because they are carbon heavy and exposed to leakage. Organic chemicals and refinery products were left out for now. The regulation allows the list to grow later, so watch the Commission's updates.

Check your own customs codes against Annex I. Do not guess from the product name. A bolt and a bar may sit on different sides of the line.

Sources: Regulation (EU) 2023/956, Annex I and recitals, EUR-Lex; European Commission, Taxation and Customs Union, CBAM page.

The phase we are in now

CBAM has two stages. The first is a transitional period that began on October 1, 2023. In this stage importers only report. There is no payment and no certificate to buy.

The second stage is the definitive period. The regulation sets its start for the day after the transitional period ends. From then, importers must be authorised, report each year and surrender CBAM certificates that match the emissions in their imports. The certificate price follows the price of EU emission allowances.

Reports are due one month after each quarter ends. The first one covered goods imported in the fourth quarter of 2023 and was due on January 31, 2024. The next is due on April 30, 2024, for the first quarter of 2024.

Sources: Regulation (EU) 2023/956, EUR-Lex; Commission Implementing Regulation (EU) 2023/1773, published September 15, 2023, EUR-Lex; European Commission, CBAM page.

What gets reported, and who does it

The legal duty sits with the EU importer, or its customs representative. A non-EU exporter is not the reporter. But the importer cannot fill in the report without data from you.

The report covers each shipment's quantity, customs code and country of origin. It also needs details of the plant that made the goods. These include the plant name, address and location, plus the production route.

The key figure is embedded emissions. This means direct emissions from making the goods, and indirect emissions from the electricity used, shown per tonne of product. If a carbon price was paid in the country of origin, that is reported too.

Sources: Commission Implementing Regulation (EU) 2023/1773, Articles 2, 3 and 7, EUR-Lex.

Flexibility for now, and it ends

The EU gave importers some room in the early rounds. Until July 31, 2024, a declarant who lacks full data may use other methods, including default values from the Commission, if the method is documented. Until the end of 2024, some national carbon schemes and monitoring systems can be used to work out emissions.

For complex goods, up to 20 percent of the embedded emissions may rest on estimates from the plant operator.

These allowances are short. Buyers will soon ask for measured data. Default values are usually less kind than a real measurement, so good records can lower a future bill.

Sources: Commission Implementing Regulation (EU) 2023/1773, Articles 4 and 5, EUR-Lex.

What exporters should do now

Start with a simple checklist.

  • Match every product you ship to the EU against Annex I customs codes.
  • Ask your EU buyers whether they have a reporting deadline and what format they need.
  • Record fuel, electricity and output for each plant and each product line.
  • Note the electricity source and any carbon price you pay at home.
  • Name one person who owns CBAM data and answers buyer requests.

Early, clean data protects your place on the buyer's supplier list. It also gives you a base to cut emissions, since the cost of a tonne of carbon will matter more once payment starts.

This note is general information, not legal or tax advice. For a real shipment, read the EU regulation text yourself or ask a customs adviser about your goods.

Sources: Regulation (EU) 2023/956 and Implementing Regulation (EU) 2023/1773, EUR-Lex; European Commission, CBAM page.

Sources

  • Regulation (EU) 2023/956 of the European Parliament and of the Council, May 10, 2023, eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32023R0956
  • Commission Implementing Regulation (EU) 2023/1773, August 17, 2023, eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32023R1773
  • European Commission, Carbon Border Adjustment Mechanism, taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en