Navigating the complexities of CBAM reporting

The European Union's Carbon Border Adjustment Mechanism (CBAM) has come into force, entering its transitional period between 2023 and 2026, with the initial reporting phase for importers running from October 1 2023 to 31 January 2024. CBAM reporting is compulsory for all importers of certain high-emitting goods, meaning you need to start thinking about how reporting will impact your business, now. 

A recent Financial Times article highlighted the initial hurdles companies are facing with CBAM. Low reporting rates and concerns about complexity and cost mean reporting rates during the transitional period have been much lower than expected, causing concerns about the viability of rolling out CBAM on a wider scale.

In this blog post, we’ll explore what CBAM is, the challenges it raises for importers, and explain how software tools can help overcome these teething problems by streamlining reporting. 

What is CBAM?

The EU’s Carbon Border Adjustment Mechanism places a carbon price on the import of certain products with high carbon-equivalent (CO2e) footprints, levelling the playing field for European businesses burdened by stricter environmental regulations. CBAM is designed to discourage "carbon leakage," where production simply shifts to countries with looser environmental standards. In this sense, it can be seen as protecting the integrity of EU businesses by ensuring fair competition for companies operating under stricter emissions regulations within the bloc.

Who is responsible for reporting carbon emissions under CBAM?

Importers of the applicable high-emitting goods into the EU are responsible for collecting the relevant CBAM data and reporting it to the relevant authority within the EU Member State where the goods enter the bloc and the customs declaration is made. They’re responsible for ensuring the accuracy and completeness of declarations, with heavy penalties in place for inaccurate reporting and submission of incorrect CBAM certificates — up to €100 per ton of underreported CO2.

What do importers need to report during the CBAM transitional period?

During the transitional period, CBAM requires participating importers to report the CO2e relating to the production of cement, iron and steel, aluminium, fertilisers, electricity and hydrogen. It also instructs them to report the "effective carbon price" in Euros. This requires importers to use the actual price of a ton of CO2e from an acceptable carbon pricing scheme in the jurisdiction where the good is produced.

There are also goods-specific reporting requirements outlined in the European Commission’s guidelines. Examples of these include the total clinker content for clement and the content levels of different forms of nitrogen for mixed fertilisers. Additionally, certain goods need to be defined based on the relevant “aggregated goods category” — for example, iron and steel must be reported separately as sintered ore, pig iron, crude steel or certain iron and steel products (for which there is a dedicated list including items like screws and bolts, tubes and pipe fittings, wire, etc.).

CBAM is currently in its early stages, but once the transitional period is finished, all businesses importing the relevant goods will be required to report the CO2e emissions and submit proof of purchased CBAM certificates equating to the reported amount of CO2e. The European Commission expects that once expanded to other high-emitting goods, CBAM reporting will cover more than 50% of the CO2e within the scope of the EU Emissions Trading System (EU ETS).

When does CBAM start?

The full CBAM roll out will be split into 4 “periods”, with the initial transitional period running from October 2023 until December 2025.

Early challenges to CBAM

The European Commission's ambition with CBAM is certainly admirable. However, low reporting rates during the early transitional period (for example, less than 10% in Germany) have exposed a significant gap in how CBAM looks on paper and how it works in practice. Many importers, especially smaller ones, still need to be made aware of their CBAM obligations and have them clearly and concisely explained to prevent any confusion. The complexity of the reporting requirements and questions over who holds the responsibility for reporting has compounded this confusion. Sarah Hay from Hydro, a major aluminium producer, aptly summarises the sentiment: "There's a lot of confusion and uncertainty."

In their recent article, the Financial Times highlights valid concerns from industry leaders. The red tape associated with CBAM adds to an already heavy administrative burden. Analysts at Citi have warned of potential cost increases for importers — particularly those relying on imports from countries with less stringent environmental regulations like Turkey, China, Russia and India.

What happens if I don’t report or pay for CBAM?

Unfortunately, ignoring CBAM isn't an option. Failure to report and submit the correct certificates by 31 May each year from 2027 onwards will result in a fine of €100 per ton of CO2e — a significant financial penalty. Additionally, the potential delays of imports due to improper reporting during the transitional period will also mean further lost revenue — a risk no business can afford.

For businesses operating on already tight margins, the cost of estimating and reporting the emissions themselves, and the risk of getting it wrong, presents a huge risk. But it’s one that carbon calculation software providers can provide an answer to.

CBAM reporting software can help importers

The European Commission has outlined default values and a comprehensive methodology for calculating CBAM emissions. Despite this, it’s still a complex and time-consuming process, draining resources and causing additional stress for already overstretched importers. 

This is where CBAM reporting software can make the difference. By providing platforms that can provide accurate and comprehensive CBAM reporting that integrate directly into importers’ freight management systems (FMS), technology can take the stress out of CBAM reporting, reduce the drain on resources and eliminate inaccuracies. Ultimately, the development of CBAM reporting software will help streamline the whole CBAM process, allowing importers to get on with their jobs while enabling the European Commission to implement the CBAM regulations.  

Prepare for CBAM with Pledge

At Pledge, we’re developing a CBAM reporting tool to take the stress out of reporting for importers. The waitlist for BETA testing is now open. Join to be contacted for early access. Don't get lost in the CBAM maze – sign up for our CBAM reporting tool BETA test now.