European Commission has proposed a Directive on "Faster and safer relief of excess withholding taxes". . 16 Market coupling is a densely regulated form of electricity trade which allows to aggregate bids and offers across the Union. Declarants will report on a quarterly basis the embedded emissions corresponding to their imports of the previous quarter, detailing direct and indirect emissions and reporting any carbon price paid abroad. Once third countries will be closely integrated into the Union electricity market via market coupling, technical solutions should be found to ensure the application of the CBAM to electricity exported from such countries into the customs territory of the Union. (iii) Ensuring that domestic production and imports are subject to similar level of carbon pricing. The Commission should be tasked to calculate and publish that average price. A more targeted allocation to organic chemicals will require more data and analysis. Population change from 2000 to 2015 Increase of 20.8% from year 2000 to 2015. Specific default values shall be based on the best data available to the Commission determining the average CO2 emission factor in tonnes of CO2 per megawatt-hour of price-setting sources in the third country, group of third countries or region within a third country. However, those third countries should develop a roadmap and commit to implement a carbon pricing mechanism providing for an equivalent price as the EU ETS, and should commit to achieving carbon neutrality by 2050 [as well as?] This could be done either based on a default value or by providing verified information about actual emissions. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY, Subsidiarity (for non-exclusive competence), The introduction of an EU-wide CBAM will create a common and uniform framework to ensure an equivalence between the carbon pricing policy applied in the EUs internal market and the carbon pricing policy applied on imports. The records referred to in paragraph 5, point (c), shall be sufficiently detailed to enable the verification in accordance with paragraph 5, point (b), and to enable any competent authority to review, in accordance with Article19(1), the CBAM declaration made by an authorised declarant to whom the relevant information was disclosed in accordance with paragraph8. by its departments, including by its staff in the Union delegations; Most notably, the. Administrative effort is relatively low for producers of materials in the EU, which means producers do not have to demonstrate the carbon intensity of their production. For this, it is necessary to monitor the effect of CBAM on the shortlisted sectors. That report confirms that in order to reduce the likelihood of extreme weather events, GHG emissions need to be urgently reduced, and that climate change needs to be limited to a global temperature increase of 1.5C. The CBAM, which is a supplementary measure to, and mirrors the EU ETS, operates by imposing a charge on the embedded carbon content of certain imports that is equal to the charge imposed on domestic goods under the ETS, with adjustments being made to this charge to take into account any mandatory carbon prices in the exporting country [3]. is the policy area or budget title concerned. EU carbon border adjustment mechanism - European Parliament By 31 May of each year, the authorised declarant shall surrender a number of CBAM certificates to the competent authority that corresponds to the embedded emissions declared in accordance with Article6(2)(c) and verified in accordance with Article8 for the calendar year preceding the surrender. In line with the Commissions Better Regulations Guidelines an open public consultation. 4.The notification referred to in paragraph 3 shall state the reasons on which it is based and shall include relevant data and statistics regarding the goods and products referred to in paragraph 2. 1.The Commission shall calculate the price of CBAM certificates as the average price of the closing prices of EU ETS allowances on the common auction platform in accordance with the procedures laid down in Commission Regulation (EU) No1031/2010 Article 24 Articles 5 and 17 shall apply from 1 September 2025. The committee shall be a committee within the meaning of Regulation (EU) No182/2011. Of these, 6responses were duplicates, leading to 609valid contributions. As part of the mandate received, the Commission was invited to put forward a proposal for a CBAM in the first semester of 2021, with a view to its introduction at the latest by 1 January 2023. Chapter VII Implementation plans and monitoring, evaluation and reporting arrangements, Detailed explanation of the specific provisions of the proposal. If the competent authority determines that an authorised declarant has failed to comply with the obligation to surrender CBAM certificates as specified in paragraph 1, or that a person has introduced goods into the customs territory of the Union as specified in paragraph 2, the competent authority shall impose the penalty and notify the authorised declarant or, in the situation under paragraph 2, the person: that the competent authority has concluded that the authorised declarant or the person fails to comply with the obligation of surrendering CBAM certificates for a given year; of the amount of the penalty imposed on the authorised declarant or on the person; of the date from which the penalty is due; of the action the competent authority considers the authorised declarant or the person should take to comply with its obligation under point (a) depending on the facts and circumstances of the case; and. 33 For the sectors covered by this system and most at risk of carbon leakage, this risk is currently managed through the granting of free allowances and compensations for the increase in electricity costs under state aid rules. The attributed emissions shall be calculated using the following equation: Where DirEm are the direct emissions, resulting from the production process, expressed in tonnes of CO2e, within the system boundaries referred to in the implementing act pursuant to Article7(6). A consultation took place until 1 April2020. with the aim to collect feedback on the initial considerations of the project. Where necessary, those acts shall provide that the default values can be adapted to particular areas, regions or countries to take into account specific objective factors such as geography, natural resources, market conditions, prevailing energy sources, or industrial processes. (18)The EU ETS and the CBAM have a common objective of pricing GHG emissions embedded in the same sectors and goods through the use of specific allowances or certificates. The implementation of an emission trading system for electricity, with a price equivalent to the EU ETS, shall be finalised by 1 January 2030; the third country or territory has put in place an effective systems to prevent indirect import of electricity in the Union from other third countries not meeting the requirements set out in points (a) to (e). Both public and targeted consultations showed agreement on the necessity of a CBAM to address the risk of carbon leakage and help the Union to achieve its increased climate ambitions. 10 That would risk undermining the effectiveness of the EUs emission mitigation policies, and could also lead to an increase in their total emissions globally, thus jeopardising the reduction of GHG emissions that is urgently needed if the world is to keep the global average temperature to well below 2C above pre-industrial levels. The appropriations required for human resources and other expenditure of an administrative nature will be met by appropriations from the DG that are already assigned to management of the action and/or have been redeployed within the DG, together if necessary with any additional allocation which may be granted to the managing DG under the annual allocation procedure and in the light of budgetary constraints. The authorised declarant should build up during the year the amount of certificates required at the time of surrendering, with thresholds set at the end of each quarter. The operator may, at any time, ask to be deregistered from the database. The European Commission's proposal provides for a gradual introduction of the CBAM starting from 2023. 3.The information in the database referred to in paragraph 2 shall be confidential. The Commission is empowered to adopt implementing acts concerning detailed rules regarding the elements of the calculation methods set out in Annex III, including determining system boundaries of production processes, emission factors, installation-specific values of actual emissions and default values and their respective application to individual goods as well as laying down methods to ensure the reliability of data on the basis of which the default values shall be determined, including the level of detail and the verification of the data. determined by reference to default values in accordance with the methods set out in Annex III. The implementing acts shall build upon existing legislation for the verification of emissions and activity data for installations covered by Directive 2003/87/EC, in particular Implementing Regulation (EU) No2018/2067. (6)The Special Report of the Intergovernmental Panel on Climate Change (IPCC) on the impacts of global temperature increases of 1.5C above pre-industrial levels and related global GHG emission pathways 2.For the purposes of paragraph 1, the authorised declarant shall ensure that the required number of CBAM certificates is available on its account in the national registry. Once that pilot phase is complete, the process of transitioning from free allowances to a carbon border adjustment mechanism will accelerate in earnest and in a manner that ensures no discrimination between domestic and imported goods, or between imported goods from different countries, in full compliance with the EU's international obligations and rights. The combined and transitional application of EU ETS allowances allocated free of charge and of the CBAM shouldin no case result in more favourable treatment for Union goods compared to goods imported into the customs territory of the Union. 52 (33)Similar technical constraints apply to refinery products, for which it is not possible to unambiguously assign GHG emissions to individual output products. Article 6 (v) Ensuring that the measure is effective, minimising the risk of being circumvented, thus providing environmental integrity. For the purposes of this point 'added value of Union involvement' is the value resulting from Union intervention which is additional to the value that would have been otherwise created by Member States alone. The carbon price is determined by the balance of this supply against the demand of the market. The phasing-out of free allocation under the EU ETS will take place in parallel with the phasing-in of CBAM in the period 2026-2034. At the same time targeted consultations were undertaken by an external contractor who conducted a total of 25in-depth interviews with senior managers and associations from the basic materials sectors, manufacturers, NGOs and policymakers. THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION. 5.Countries and territories shall be listed in Annex II, Section A, subject to the cumulative fulfilment of the following conditions: : (a)the EU ETS established pursuant to Directive2003/87/EC applies to that country or territory or an agreement has been concluded between that third country or territory and the Union fully linking the EU ETS and the third country or territory emission trading system; (b)the price paid in the country where the goods are originating in is effectively charged on those goods without any rebate beyond those also applied in the EUETS. Where no specific default value has been determined for a third country, a group of third countries, or a region within a third country, the default value for electricity shall represent the CO2 emission factor in the EU, in tonne of CO2 per megawatt-hour. (10)Existing mechanisms to address the risk of carbon leakage in sectors or sub-sectors at risk of carbon leakage are the transitional free allocation of EU ETS allowances and financial measures to compensate for indirect emission costs incurred from GHG emission costs passed on in electricity prices respectively laid down in Articles10a(6) and 10b of Directive2003/87/EC. This average price shall be published by the Commission on its website on the first working day of the following calendar week and shall be applied from the following working day to the first working day of the following calendar week. 2.2.3.Estimation and justification of the cost-effectiveness of the controls (ratio of "control costs value of the related funds managed"), and assessment of the expected levels of risk of error (at payment & at closure). The power to adopt delegated acts is conferred on the Commission subject to the conditions laid down in this Article. Those records shall be sufficiently detailed to enable verifiers accredited pursuant to Article 18 to verify the embedded emissions in accordance with Article8 and AnnexV and to enable the competent authority to review the CBAM declaration in accordance with Article19(1). Therefore, the limits to the possibilities to trade CBAM certificates and to carry them forward is justified by the need to avoid undermining the effectiveness and climate objective of the CBAM and to ensure even handed treatment to operators from different countries. 31 Where authorised declarants of goods originating in a third country, or for a group of third countries having a significant exchange of electricity with the EU, it can be demonstrated, on the basis of reliable data, that the average CO, emission factor of price-setting sources in that third country or that group of third countries is lower than the one in the EU or lower than the specific default value, an alternative default value based on that average CO. e emission factor shall be established for that country or group of countries. It shall take effect the day following the publication of the decision in the Official Journal of the European Union or at a later date specified therein. Integration of third countries into the Union electricity market is an important drive for those countries to accelerate their transition to energy systems with high shares of renewable energies. Such sanctions shall be effective, proportionate and dissuasive. PDF EU carbon border adjustment mechanism - European Parliament Under the EU ETS, the total number of allowances issued (the cap) determines the supply of emission allowances and provides certainty about the maximum emissions of GHG. On 19 June 2023, the European Commission proposed a Council Directive on Faster and Safer Relief of Excess Withholding Taxes (FASTER). (24)In terms of sanctions, Member States should apply penalties to infringements of this Regulation and ensure that they are implemented. As regards the administration of the measure empowering national competent authorities would maximise the effectiveness of the implementation and enforcement by taking into account national experiences in managing the EU ETS. (f)of the right of the declarant or to appeal under national rules. 3.If the competent authority refuses to authorise a declarant, the declarant requesting the authorisation may, prior to an appeal, object to the relevant authority under national law, who shall either instruct the national administrator to open the account or uphold the refusal in a reasoned decision, subject to requirements of national law that pursue a legitimate objective compatible with this Regulation and are proportionate. 17stakeholders came from industry, 5from NGOs and 3from Member State institutions. Chapter VIII Besides, conferring certain tasks related to implementation and enforcement to authorities in charge of climate and customs in Member States would address technical and methodological constraints and increase effectiveness. An authorised declarant may require to apply actual embedded emissions instead of default values for the calculation referred to in Article7(3) if the following cumulative criteria are met: (a)the authorised declarant has concluded a power purchase agreement with a producer of electricity located in a third country for an amount of electricity that is equivalent to the amount for which the use of a specific value is claimed; (b)the installation producing electricity is either directly connected to the EU transmission system or it can be demonstrated that at the time of export, there was no physical network congestion at any point in the network between the installation and the EU transmission system; (c)an equivalent amount of electricity to the electricity for which the use of actual embedded emissions is claimed has been firmly nominated to the allocated interconnection capacity by all responsible transmission system operators in the country of origin, the country of destination and, if relevant, each third country of transit, and the nominated capacity and the production of electricity by the installation referred to in point (b) refer to the same period of time which shall not be longer than one hour; (d)meeting the above criteria is certified by an accredited verifier. The problem addressed by the CBAM is how to reduce GHG emissions in the EU, while at the same time avoiding that these emissions reduction efforts are offset by emissions increasing outside the Union (carbon leakage). The ParisAgreement commits the international community to a continuous increase in the ambition of climate action to limit global average temperature rise in order to significantly reduce the risks and impacts of climate change. In order to address risks of carbon leakage from these developments, the European Commission (EC) released a consultation process in 2020 on the design features of alternative approaches to introducing a CBAM. Central administrator. The request for registration referred to in paragraph 1 shall include the following information to be included in the database upon registration: the name, address and contact details of the operator; the location of each installation including complete address and coordinates expressed in longitude and latitude including 6 decimals; the main economic activity of the installation in the third country; The Commission shall notify the operator on the registration in the database. 1.Any person accredited pursuant to Implementing Regulation(EU) No2018/2067 shall be regarded as an accredited verifier under this Regulation. The EU objective of climate neutrality and the decision to raise the climate ambition for 2030 also lead to a broader reconsideration of existing measures against the risk of carbon leakage. Importation of goods. Article 19 57. This measure will be designed to comply with World Trade Organization rules and other international obligations of the EU, This mechanism is an alternative to the measures that address the risk of carbon leakage in the EUs Emissions Trading System. Note: CBAM is not expected to generate revenue in the transitional period from 2023 to 2025. Without such a mechanism, carbon leakage could result in an overall increase in global emissions. (34)However, aluminium products should be included in the CBAM as they are highly exposed to carbon leakage. a description on how the installations emissions are attributed to different types of goods; quantitative information on the goods, emissions and energy flows not associated with those goods; in case actual emissions are used: the identification of the installation where the input material has been produced and the actual emissions from the production on that material. 1.This Regulation applies to goods as listed in Annex I, originating in a third country, when those goods, or processed products from those goods as resulting from the inward processing procedure referred to in Article256 of Regulation (EU) No952/2013 of the European Parliament and of the Council The CBAM itself will enter into application in its transitional phase on 1 October 2023, with the first reporting period for importers ending 31 January 2024. The customs authorities shall periodically communicate information on the goods declared for importation, which shall include the EORI number and the CBAM account number of the declarant, the 8-digit CN code of the goods, the quantity, the country of origin, the date of declaration and the customs procedure, to the competent authority of the Member State where the declarant has been authorised. Moreover, while the EU ETS applies to installations based in the Union, the CBAM should be applied to certain goods imported into the customs territory of the Union. In particular, while free allocation of allowances effectively prevents carbon leakage risks, it weakens the carbon price signal for the Union industry compared to full auctioning. (4)The Union is committed to reducing its economy-wide GHG emissions by at least 55per cent by 2030 below 1990 levels, as set out in the submission to the UNFCCC on behalf of the European Union and its Member States on the update of the nationally determined contribution of the European Union and its Member States Finally, the analysis rests on additional literature review, studies and research papers submitted by academics in the open public consultation and other independent studies. If in such cases market coupling remains incompatible with the application of this Regulation, the Commission may decide to exclude the third countries or territories from Union market coupling and require explicit capacity allocation at the border between the Union and the third country, so that the CBAM can apply. 1.5.3.Lessons learned from similar experiences in the past. Do you want to help improving EUR-Lex ? Further, the introduction of CBAM certificates based on actual emissions would protect against the risk of carbon leakage while incentivising third country producers to move towards cleaner production processes, with the support of Official Development Assistance when applicable. The Union is extremely active in international fora to strengthen environmental global rules and to accompany trade partners and less developed countries on a path to decarbonise. The proposal/initiative will entail reprogramming of the relevant heading in the multiannual financial framework. , with a view to preventing the risk of carbon leakage in offshore installations. Option 6 consists of an excise duty on carbon-intensive materials covering consumption in the Union of both domestic and imported products, besides the continuation of the EUETS including the free allocation of allowances covering production in the EU. The Carbon Border Adjustment Mechanism (CBAM) is a carbon tariff on carbon intensive products, such as cement and some electricity, [1] imported by the European Union. 22 The Commission shall, upon request by an operator of an installation located in a third country, register the information on that operator and on its installation in a central database referred to in Article14(4). 1.The customs authorities shall not allow the importation of goods unless the declarant is authorised by a competent authority at the latest at the release for free circulation of the goods. Embedded emissions in imported electricity shall be determined by reference to default values in accordance with the method set out in Annex III, point4.2, unless the authorised declarant chooses to determine the embedded emissions based on the actual emissions in accordance with that annex, point 5. Countries and territories shall be listed in Annex II, Section A, subject to the cumulative fulfilment of the following conditions: : the EU ETS established pursuant to Directive2003/87/EC applies to that country or territory or an agreement has been concluded between that third country or territory and the Union fully linking the EU ETS and the third country or territory emission trading system; the price paid in the country where the goods are originating in is effectively charged on those goods without any rebate beyond those also applied in the EUETS. electricity and amending Directive 2012/27/EU (OJ L 158, 14.6.2019, p. 125). On 14 July 2021, the European Commission has launched the details of a new measure packaged as the Carbon Border Adjustment Mechanism (the 'Mechanism') for regulating greenhouse gas emissions embedded in certain goods, upon their importation into . The product coverage of the CBAM should reflect the activities covered by the EUETS as that scheme is based on quantitative and qualitative criteria linked to the environmental objective of Directive 2003/87/EC and is the most comprehensive GHG emissions regulatory system in the Union. As installations covered by the EU ETS are subject to a carbon price assessed on their actual emissions, imported products in the scope of the CBAM should also be assessed based on their actual GHG emissions. As indicated by the European Green Deal, the CBAM would ensure that the price of imports reflects more accurately their carbon content. This could be done either based on a default value or by providing verified information about actual emissions. In addition, in view of the EUs position in international trade, if it introduces a CBAM the environmental effect on international climate ambitions will be most effective as a potential example to follow. The European Commission regards the CBAM as a landmark tool to promote cleaner production practices outside the bloc. Most revenues generated by CBAM will go to the EU budget 3.Payment of the penalty shall in no case release the authorised declarant from the obligation to surrender the outstanding number of CBAM certificates in a given year to the competent authority of the Member State where the declarant has been authorised. The value of the European Green Deal has only grown in light of the very severe effects of the COVID-19 pandemic on the health and economic well-being of the Unions citizens. The enhanced Union climate ambition would increase the gap in carbon costs between electricity production in the Union and abroad. AnnexII indicates the countries and territories of origin excluded from the application of the measure. contains provisions in Article30 on the evaluation of the Regulation and its review.