How Can We Prepare For CBAM?
Here is currently an issue that has caught the attention of the trade industry. It is none other than the EU’s Carbon Border Adjustment Mechanism, CBAM! CBAM, which was first announced in 2021, will enter its transitional period in October 2023, just about two years later.
CBAM, approved on April 25, 2023, is a carbon tariff introduced by the EU to address carbon leakage issues. Under this system, when importing products, certificates must be purchased based on the amount of carbon emissions generated during the production process of the product.
In fact, most people are somewhat familiar with the conceptual aspects of CBAM. However, at this point, as CBAM implementation is just two months away, it is essential to examine the practical provisions of the CBAM transitional period.
On August 17th, about two weeks ago, the CBAM Implementing Regulation was announced. Let’s take a look at the section related to calculations in the CBAM transitional period, using steel as an example.
The table above contains information about steel products and the unit of embedded emissions. Several key points to understand include:
1. Embedded Emissions:
The first point to note is about embedded emissions. Embedded emissions refer to the amount of carbon emissions produced during the manufacturing of a product. While the initial draft of the regulation discussed calculating carbon emissions based on the weighted average of all processes involved in producing a single product, the current regulation specifies that embedded emissions should be determined based on the production process-specific emissions.
When calculating embedded emissions, you should consider the following:
1) Determining Emission Calculation Methods: Emissions can be determined using activity data obtained through measurement systems and calculation factors from laboratory analyses or standard values.
2) Monitoring Methods: The emissions can be determined by continuously measuring the concentration of the relevant greenhouse gas in the flue gas and the flue gas flow.
2. Indirect Emissions:
The table clearly separates direct and indirect emissions. According to CBAM regulations, for certain product categories like steel, both direct and indirect emissions must be considered during the transitional period. Additionally, indirect emissions need to be calculated separately.
So far, we’ve looked at some aspects related to calculations in the CBAM transitional period, using steel as an example. Even though CBAM is set to begin in two months, it doesn’t mean you have to immediately purchase certificates based on your carbon emissions. Moreover, it may seem like a distant concern if your industry is not among the six categories like cement or steel currently subject to carbon emissions reporting.
However, the EU is considering extending the scope to organic chemicals and plastics, among other downstream products. So, someday, it could become relevant to you or your company. Now is a great time for everyone to start studying the relevant information about CBAM.
Lastly, I’d like to share a list of CBAM webinars organized by the European Commission. These webinars cover various product categories under CBAM and offer opportunities for Q&A sessions. If you have any questions, attending one of these webinars might be beneficial.
For more details, please refer to the link below.
https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en
References
European commission(2023), Commission implementing regulation(EU).
European commission(2023), Guidance document on CBAM implementation for installation operators outside the EU.
