Guest writer
The first phase of the implementation of the Carbon Border Adjustment Mechanism (CBAM) is approaching. The CBAM is a new type of EU-level policy instrument whose purpose is to combat carbon leakage, that is, to prevent the relocation of emissions-intensive production from the EU to countries with less stringent climate policies. The objective of the mechanism is to reduce greenhouse gas emissions in the EU and globally. In theory, its working principle is simple: a fee corresponding to the price of an EU emission allowance is charged for products covered by the CBAM based on the emissions embedded in the products. Besides combatting carbon leakage, the aim of the CBAM is also to encourage third countries to introduce pricing mechanisms for carbon similar to emissions trading.
The CBAM will be introduced in two phases. The reporting period for importers of products covered by the CBAM will start on 1 October 2023. Importers that import products covered by the mechanism must submit their first CBAM report on the product’s emissions to Customs by the end of January 2024. The second phase of the implementation will start on 1 January 2026, at which point the importers must also purchase a number of CBAM certificates that corresponds to the emissions of the CBAM products. This presents a big change for many operators and importers in the emissions intensive industries as well as within trade, and the expectations are that the first phase of the CBAM implementation may not all be plain sailing.
When implementing a completely new policy instrument, it is wise to leave some leeway and flexibility in implementation specifics, so that we can make use of the lessons learned during the process. The legislation on the CBAM will be further specified in each step, and this will require meeting recurring legislative needs from the state administration and constant learning from the operators. The basic regulation on the CBAM defines the framework of the mechanism, but more detailed provisions will be laid down as the implementation progresses. Due to this, the authorities may also not yet have answers to all the questions that the operators may have.
In the regulation on establishing a carbon border adjustment mechanism published in May, the Commission is given the power to adopt a total of 12 implementing regulations and four delegated regulations on the application of the CBAM. Apart from its essential content, the original regulation can be supplemented or, if needed, amended through delegated acts. The implementing regulations will guarantee a uniform enforcement across the member states. The EU’s legislative acts, implementing regulations and delegated acts are legally binding as such in the member states. Thus, efforts must be made at the ministry level to ensure that the national legislation is in line with the EU legislation.
The European Commission has published its first Implementing regulation with Annexes. The Regulation lays down the rules of the reporting period, specifying the reporting obligations for the importers, the calculation methods for reporting emissions and the penalties for failure to report. During the reporting period, the Commission, the national authorities and the importers will study the implementation of the new instrument. Based on the reporting period, the Commission will assess the impact of the CBAM in preventing carbon leakage and any need to expand its scope.
The next legislative acts on the CBAM are to be adopted in sets. The first set will be published in autumn 2024. The preparation of the supplementary acts, however, will begin already in 2023. In the third quarter of 2024, the Commission’s plan is to specify the rules concerning applications for an authorisation to act as an authorised CBAM declarant (Articles 5 and 7), the CBAM registry (Article 14), the accreditation of verifiers (Article 18) and verification (Article 8). The Finnish Ministry of Economic Affairs and Employment will participate in the preparation of the legislative acts at the EU level, while calling attention to standpoints that are important for Finland and informing the stakeholders.
The timetable of the CBAM is tight for both the importers and authorities. Tom Ferm, Director of Customer Relations and Tax Collection at Finnish Customs, has written in his blog post (in Finnish) about the practical challenges that the CBAM poses in the reporting period. To tackle these challenges, the Commission has published guidance documents for importers and installation operators outside the EU. The documents, running more than a hundred pages, give detailed information to support the implementation of the CBAM, and are written in non-legal language to help interpret the legislation. The Commission has promised to provide guidance also in the other major trade languages, such as in Mandarin, in order to facilitate the collection of emissions data from third countries. The Commission receives particular praise for building a detailed Excel template that the importers and the third-country operators can use in the exchange of information relating to emissions data. In addition, the Commission is organising online webinars tailored for each sector, as well as other training opportunities on its website to ensure that the operators have sufficient information. The webinar recordings will be available on the Commission’s CBAM pages. This page, which is regularly updated, also puts together all the other information material provided by the Commission on the CBAM.
This autumn, the most interesting milestone in the CBAM implementation must be the kick-off of the reporting period itself. Another notable event will be the submission of the government proposal to the Finnish Parliament regarding the implementation of the CBAM and the amendment of section 2 in the Customs Act. The government proposal is a bill that has been drafted by the Ministry for Economic Affairs and Employment as part of its official duties. Stakeholders and citizens have had the opportunity to comment on the government proposal during the consultation step of the legislative process, and based on this, a summary of the consultation and any necessary changes to the government proposal have been made. Once the government proposal has been submitted to Parliament in the government plenary session, a preliminary debate is held in Parliament. After this, the bill is submitted to a committee, which hears the relevant experts in the matter and finally produces a report on the bill. This is followed by a plenary session where Parliament deliberates the bill based on the reports from the committees. As regards the CBAM, the aim is to submit the government proposal at the beginning of October in conjunction with the government’s budget session. The acts on the implementation of the CBAM and on amending section 2 of the Customs Act are to enter into force on 1 January 2024.
- Saana Takamäki
The writer is Senior Specialist at the Energy Department of the Ministry of Economic Affairs and Employment. She is in charge of the national implementation of the CBAM at central government level and participates in drafting the legislation involved.
