Updates: On December 17, 2022, MEPs and EU governments reached the deal to reform the Emissions Trading System. As determined by the agreements, the transition period for CBAM will end by the end of 2025. Therefore the levy period will start on January 1, 2026.
It should be noted that free allowances under EU ETS affect the calculation of carbon tariffs during CBAM levy period. The free allowances to industries in the ETS will be phased out as follows:
| 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 |
| 2.5% | 5% | 10% | 22.5% | 48.5% | 61% | 73.5% | 86% | 100% |
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On December 12, 2022, the European Parliament (EP) reached a provisional agreement with the Council on carbon levy—Carbon Border Adjustment Mechanism (CBAM). The agreement mainly adjusted the application scope and implementation date of CBAM and explored the integration of CBAM with the EU emissions trading system (ETS).
The CBAM proposal was passed by EP on July 14, 2021. The proposal underwent two amendments in May and June this year, which mainly revised the scope of products and emissions and adjusted deadlines for the transition period and free allowance. (ChemLinked News)
Under the provisional agreement, the implementation date for CBAM was extended from January 1, 2023 to October 1, 2023, allowing more time for companies that import into the EU to comply with new rules. After the implementation, a transition period will be offered where importers' obligations shall be limited to reporting. The length of the transition period will be negotiated later this week in connection with the phasing out of the free allowances under the ETS. The main content of this agreement is summarized below:
Scope of application
Product scope: Iron and steel, cement, aluminum, fertilizers and electricity, hydrogen, certain precursors as well as some downstream products such as screws and bolts and similar articles of iron or steel.
Before the end of the transition period, the Commission shall assess whether to extend the scope to other goods at risk of carbon leakage, including organic chemicals and polymers, with the goal to include all goods covered by the ETS by 2030.
Emission scope: CBAM will mainly focus on direct emissions during the transition period whereas indirect emissions will be subject to more stringent regulation. Under certain conditions, indirect emissions can be included under CBAM.
Major obligations
Transition period: Submit the CBAM report, including the quantity, importing country, carbon emission data and the carbon cost of imported products paid in the country of origin.
Levy period: Submit the CBAM report, including the quantity, importing country, carbon emission data and the carbon cost of imported products paid in the country of origin, number of CBAM certificates, verification reports issued by accredited agencies.
Next steps
This partial deal is dependent on an agreement on the revision of the EU ETS. EP and Council will have to formally approve the agreement before the new law can come into force. ChemLinked will keep you updated on the latest development.
