As part of the EU’s climate-neutral ambitions, CBAM (effective 1 October 2023) will impact imports into the EU of goods in certain carbon emissions intensive sectors.

Impacted importers need to prepare for new reporting obligations regarding these imports starting from January 2024 and new CBAM registration requirements from 2025. An additional CBAM carbon cost will arise on impacted imports from 2026. We explain the implications below.

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What CBAM applies to

CBAM initially affects goods imported from non-EU countries that are particularly carbon-intensive.

The initial imports targeted are within the iron and steel, aluminium, cement, fertilisers, hydrogen and electricity sectors, as well as some upstream and limited downstream products (mainly iron, steel and aluminium).

How to know which imports are covered

The specific products covered by CBAM depends on their Customs duty classification and commodity code (Combined Nomenclature or ‘CN’ codes).

There is a published list of impacted commodity codes.

How CBAM works

The EU is implementing CBAM in two phases, starting with a “reporting-only” phase that runs to end 2025 and then a roll out of CBAM’s financial cost and full reporting regime from 1 January 2026.

From 2024 – New reporting obligations apply
- An importer of CBAM goods must file a quarterly CBAM report (within one month after the quarter).
- The quarterly report contains information including the imported quantity of CBAM goods, the direct and indirect emissions embedded in the imports (calculated in line with permitted CBAM methodologies), as well as any carbon price due in the country of production.
- The first CBAM report (for Q4 2023) is due by 31 January 2024.
- Penalties will be imposed for not satisfying these reporting requirements.
From 2025 – Mandatory registration obligation
- If impacted, importers must apply for authorisation as a registered CBAM declarant.
- This will be needed in order to import CBAM covered goods from 1 January 2026 onwards.
From 2026 – Additional import costs and potential import blocks
- Importers will only be allowed to import CBAM goods as a registered CBAM declarant. In practical terms, the Customs Authorities in each EU country will be required to block the import of CBAM goods by non-registered declarants.
- Additional financial costs will arise on the import of CBAM affected goods as importers will need to purchase CBAM certificates to cover the embedded carbon emissions in affected goods.
- The cost of these certificates may be substantial and will be based on the weekly average EU Emissions Trading Scheme (ETS) auction price.
- The CBAM cost incurred will be linked to the equivalent ETS carbon price for domestic goods but with credit for certain carbon taxes (if any) paid in the exporting country.

The future?

While limited to certain sectors at the moment it is expected that in time CBAM will be extended to other carbon intensive areas and imports.

What businesses need to do now

In the short term, you should:

Review

Review your existing/ forecasted imports and your supply chains in order to identify if any of your imports are covered by CBAM
Examine

Examine the Customs classification and origin of your imports as a key part of this review - currently there are a range of products impacted, particularly in the iron, steel and aluminium sectors
Prepare

Where you are impacted, prepare for the new quarterly CBAM reporting obligations as the first report will be due by 31 January 2024
Engage

Engage with your suppliers of CBAM goods so as to obtain relevant information and identify any data gaps

In the longer term and from 2026, CBAM will impose an additional financial cost on impacted goods.

Aspects to consider in advance of the full roll-out of CBAM from 2026 include:

Understand

Understanding the potential future cost of CBAM for your business and ensuring your imports of CBAM goods will not be disrupted
Strategy

Developing a strategy managing any potential impact of CBAM on your supply chain, including mitigation and/ or wider decarbonisation strategies involving relevant stakeholders in the business
Implement

Implementation of robust Customs duty and business processes to help support your CBAM compliance
Review

Review of supplier contracts to ensure clarity around CBAM obligations

How KPMG can help

Our team is part of a global network of professionals who provide specialised assistance in global trade, customs and CBAM matters.

With the first CBAM report due in January 2024, it is important that impacted businesses act now and we would be delighted to discuss with you how we can help your business comply with the new CBAM regime.

If you are interested in learning more, please contact our CBAM team below or your regular KPMG contact.