CBAM: European businesses grapple with ‘bureaucratic madness’

5 months ago 11

The EU’s CO2 tariff continues to provoke basic operational questions within the business community, even though companies are already subject to its formal reporting obligations.

On 1 October 2023, the world’s first-ever climate import duty – the Carbon Border Adjustment Mechanism (CBAM) – went into effect.

The scheme will impose tariffs on a range of carbon-intensive products imported into the EU, such as cement, steel, aluminium, and fertiliser, unless exporting countries set their own domestic charge on the associated carbon emissions.

For now, the scheme is just collecting data. Tariffs for foreign products will only apply from 2026. However, the CBAM has already been described as “bureaucratic madness” by business groups.

EC technical briefings

CBAM sets 31 July as the final deadline for reporting on 2023 imports. In anticipation of this date, companies’ compliance workers are attending technical briefings hosted by the European Commission’s tax department to understand what to file where.

“Suppliers are sending ISO 14067 documents at the moment. Did I understand it correctly that these cannot be used?” an anonymous consultant asked at one such technical assistance meeting, held on 19 June, which was open to the public.

The ISO 14067 is today’s global standard for quantifying the CO2 emissions associated with products – and will not be integrated into CBAM reporting.

It is just one of many details challenging compliance workers.

Reporting itself can only be conducted if the importer of a product has an EU presence. Otherwise, they must nominate someone in their stead.

“Will a non-EU-based company be able to do CBAM reporting itself, if they have a local EU VAT registration?” asked another attendant of the meeting. After all, if a company can pay taxes within the EU, why not report and pay its CBAM fees, too?

“The answer is no,” replied an official from the Commission’s tax department. But of course, once the company nominates an entity to do their reporting, they could do so for all EU countries, the expert stressed.

Confusion is not just limited to workshop attendees.

In a warning letter to EU bureaucrats, the International Chamber of Commerce (ICC) wrote of “severe compliance challenges faced by companies – of all sizes” due to the 27 national authorities to which businesses must report their data.

Additionally, the process has been plagued by “technical issues” preventing companies from accessing the scheme, alongside additional bugs in the system, the letter added.

In Germany, the platform was offline for weeks following the start of the CBAM introductory period, due to lack of authority in charge. “Many companies were not even able to register for months,” machining association VDMA complained in January.

The ICC further argued that the threshold to be considered an importer of CBAM goods is set too low, too, at €150.

“A large number of transactions is captured in the scope of the CBAM including those traded in low volumes – such as screws and bolts,” the letter stresses.

In business circles, stories are making the rounds of cycling enthusiasts ordering screws from abroad and receiving CBAM notices asking them to report the emissions of their suppliers.

The Commission did not respond to a request for comment, by time of publication.

Next steps

The Commission will be busy over the coming years even before the scheme starts charging importers.

In Q3 2024, non-EU companies looking to authorise a representative – who does the reporting on their behalf – will receive the “conditions and procedures to be followed,” explained a representative from the Commission.

The second law expected around that time will “determine the infrastructure and the practical arrangements of the IT system.” The IT systems for companies to report their data have been operating – more or less – since 1 October 2023.

Key steps to watch include a report by the end of the year, which will examine whether to extend CBAM to ‘downstream’ products such as cars, which incorporate a high share of some of the primary products already within the CBAM’s scope.

This extension is considered key by observers and some within the Berlaymont, but is expected to add further complexity to the scheme. Climate Commissioner Wopke Hoekstra has expressed openness to considering the idea.

Then, in the second half of 2025, the Commission is expected to consider whether to exclude electricity from the scheme. The third report will assess to which extent the scheme may impact the industries of poorer neighbours.

[Edited by Donagh CagneyZoran Radosavljevic]