One of the most significant mechanisms on the European Green Deal (“Green Deal”) agenda is the Carbon Border Adjustment Mechanism (“CBAM”), particularly for exporters to the EU. The Green Deal introduced CBAM to ensure that products at risk of carbon leakage are taxed according to their carbon intensity when imported into the EU. The risk of carbon leakage is currently addressed in the EU through the EU Emissions Trading System (“EU ETS”).
While the EU ETS system acts as an incentive for EU producers to reduce their emissions, it also creates a disparity between EU producers and their counterparts in third countries without carbon pricing mechanisms.
The CBAM entered into force on January 1, 2023, with a phased transition period until December 31, 2025. The CBAM applies to imports of carbon-intensive goods such as cement, iron and steel, aluminum, fertilizers, electricity and hydrogen, targeting sectors with high risks of carbon leakage and emissions. During the CBAM transition period, which began on October 1, 2023, importers will be required to report the embedded greenhouse gas emissions of their products on a quarterly basis, with the first reporting deadline set for January 31, 2024. Importantly, this reporting requirement does not include financial payments during the transition period. The CBAM Regulation requires reporting entities to submit their CBAM reports no later than one month after the end of each quarter.
Addressing Technical Barriers to Reporting and the Transitional Period
Users have reported several technical issues with the CBAM registry and have encountered difficulties in submitting reports. In response to these reports, the European Commission (the “Commission”) has issued a statement recognising the technical difficulties affecting the ability of companies to submit data and reports related to the EU CBAM and Import Control System 2 (“ICS2”). The Commission has stated that these issues are the result of a technical incident affecting several EU customs systems, including ICS2 and the CBAM registry.
In response to these issues, and to assist those who are experiencing reporting problems and have not yet submitted their quarterly CBAM reports, a new functionality will be available on the Transitional Registry as of February 1, 2024. This feature will allow affected companies to submit a "Request for Delayed Filing," which will provide an additional 30 days to file CBAM reports.
In line with the guidance provided to National Competent Authorities ("NCAs"), the Commission's statement assures that no penalties will be imposed on reporting companies experiencing such technical difficulties. Late submissions due to system errors are justified provided that the relevant CBAM report is submitted immediately after the technical problems have been resolved. Penalties imposed by NCAs will not be applied until a correction process has been initiated, allowing reporting declarants to provide justification for delays and to correct any inaccuracies in their CBAM reports.
The Commission encourages reporting declarants without significant technical problems to submit their CBAM reports by the end of the reporting period on January 31, 2024 and emphasizes compliance with Implementing Regulation 2023/1773, which governs the transitional period. These companies will then be able to amend and correct their first three CBAM reports until July 31, 2024.
The proactive measures taken by the Commission in response to technical issues affecting the CBAM Transitional Registry and the ICS2 demonstrate its commitment to assisting companies experiencing difficulties with their CBAM reporting obligations. The introduction of a new "delayed filing" feature in the Transitional Registry provides a practical solution and allows filers experiencing difficulties an additional 30 days to submit their CBAM reports. In addition, the Commission's assurance that no penalties will be imposed on declarants who encounter technical obstacles reflects a reasonable approach that recognizes the justification for late submissions due to system errors. The commitment not to impose penalties until a correction process has been initiated underscores the Commission's commitment to fairness and flexibility.
For more information on the CBAM transitional period, reporting obligation, regulation and its impact on your company or business, please contact your CMS partner or your local CMS expert: Dr Döne Yalçın, Merve Akkuş and Sabahattin Öztemiz