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CBAM Transitional Period: What It Means for Exporters to EU and How They Can Meet Requirements

The start of a transitional period for the European Union’s (EU) carbon border tax (Carbon Border Adjustment Mechanism – CBAM) on October 1, 2023 also marked the beginning of serious changes in doing business for companies in the Western Balkans and Turkey. The affected companies are exporters of cement, electricity, fertilizers, steel, iron, aluminum, and hydrogen, but also certain products obtained from them, such as screws and various constructions. Exporters will now have to measure how much CO2 is released in the production of the exported goods and report on it to their importers in the EU. Reporting is done quarterly, and the first report is due on January 31, 2024.

In addition to enabling EU importers to comply with the CBAM regulations by reporting on their emissions, the requirement will also benefit exporters as they will be able to get a picture of how the carbon border tax will affect the price of their products on the EU market and consequently their competitiveness. The obligation to pay a certain amount of tax per ton of exported goods will be applied from January 1, 2026.

The size of the costs is best illustrated by the current price of CO2 emissions in the EU, of about EUR 80 per ton. Different industries have different emission levels, so for example the production of one ton of steel releases 1.5 – 2 tons of CO2. Turkish companies estimate that CBAM will cost them 25% of the revenue obtained from exports to the EU.

Turkish companies estimate that CBAM will cost them 25% of the revenue obtained from exports to the EU

To get a better picture of what lies ahead for exporters, we have talked to experts from law firm Petrikić & Partners AOD in cooperation with CMS Reich-Rohrwig Hainz (CMS Belgrade) and with energy expert Damir Miljević.

What obligations await exporters to the EU?

CBAM currently covers cement, electricity, iron, steel, aluminum, fertilizers, and hydrogen. But it also applies to certain precursors used in the production of these products and to certain products made of steel, iron, and aluminum, such as screws or various constructions. Specific products are listed in the CBAM regulation itself.

Jovana Bingulac, a lawyer at CMS Belgrade, says that all importers of the affected goods based in an EU member state are obliged to report. However, importers that are not based in an EU member state, but for example in Serbia or Bosnia and Herzegovina, are also required to report. Such companies must submit CBAM reports through a customs representative.

“The main challenge for non-EU producers, for example from the Western Balkan region and Turkey (non-EU countries tracked by Balkan Green Energy News), who sell goods to importers in the EU, is the obligation to collect, monitor, and report on CO2 emissions for relevant products,” says Bingulac.

In brief, the obligations for exporters covered by CBAM are as follows:

  1. Calculating direct emissions from the production of their goods,
  2. Calculating emissions incorporated in the production of precursors,
  3. Calculating indirect emissions from the use of electricity in the production of goods,
  4. Sending a report on calculated emissions to the buyer or importer of goods in the EU.

In the transitional period, these CBAM reports, which will be submitted in the EU by importers, will also contain data such as the amount of imported goods and how much CO2 taxes has been paid, if such levies exist in the country of origin.

Asked whether and how those importer reports will be verified or checked, Bingulac says that during the transitional period, verification is a completely voluntary measure that companies can use as a tool to improve the quality of their data and to prepare for the time when CBAM is implemented in full.

Once CBAM is implemented in full, the data contained in a CBAM report will have to be verified by an authorized verifier.

How can exporters meet their obligations in the transitional period?

To obtain relevant and reliable data on CO2 emissions, exporters must first study the financial and other implications of the CBAM on their business and establish a system for internal data gathering.

The European Commission has published instructions and guidelines on how to apply the CBAM and meet the reporting requirements in order help companies with this procedure.

The EU executive is also preparing material for online training and webinars, pamphlets with information for specific sectors, and checklists with detailed steps in order to support companies in different sectors during the transitional period.

However, Bingulac says, since this is the first time that CO2 emissions are measured and reported to the EU in a formal way, it is clear that this will be a challenge for companies. They will now face both the additional paperwork and the need to adapt quickly in order to stay competitive in the market.

The options for exporters are either to measure emissions themselves or to hire someone from the outside to do it for them

They will certainly be assisted in this process by renowned audit firms that already have some experience in collecting data and reporting on CO2 emissions, says Bingulac.

CMS helps clients understand CBAM requirements

Across Europe and other relevant areas, CMS helps clients, both exporters and importers, to understand the reporting requirements, accounting methods, and implications of non-compliance with such requirements during the CBAM transitional period.

CMS also plans to organize training and workshops to explain the CBAM requirements to relevant operational teams.

“Going forward, we also wish to advise clients on their obligations after the end of the transitional period.” If a company operates in the EU and falls under the category of “importer,” our goal is to advise it on how to become an “authorized declarant” and how to obtain and file CBAM certificates,” says Bingulac.

Damir Miljević: Companies should seek help from their governments, the consequences can be disastrous

cbam transitional phase western balkans turkey damir miljevic

Asked to give advice to companies in the region affected by CBAM, Damir Miljević, a member of the RESET Board of Directors, tells Balkan Green Energy News that they should contact their partners in the EU as soon as possible because the tax will not be charged to exporters to the EU but to the importers of their goods.

If both parties have a common interest in continuing their cooperation, they should jointly agree on how to implement measures and activities in the transitional period.

Governments in the region are not aware of CBAM’s possible impact

Additionally, Miljević advises companies from the region to organize and, through their associations (chambers of commerce or employers’ associations), ask their governments for help, both in implementing measures in the transitional period, in terms of technical and financial assistance, and in developing any future support system.

“The EU is the main and most important trade partner for all the countries of the region, so failure to implement measures in the transitional period could prove disastrous for parts of the economy in terms of lost markets, and consequently for the entire economies of the countries of the region. It is my personal impression that the governments in the region, and especially the relevant ministries, are neither sufficiently informed nor aware of the possible impact of the introduction of CBAM on the domestic economy,” warns Miljević.

Source : Balkan Green Energy News