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6 most basic things about CBAM you need to know

6 most basic things about CBAM you need to know

The formula 5W + 1H (what - what, why - why, when - when, where - where, who - whom, how - how) are very basic questions when needing to understand any problem. What new topic or field? The Carbon Border Adjustment Mechanism (CBAM) issued by the European Union is one of the areas of most concern today because it affects production and exports - two important pillars of the EU. economy. Let's join GREEN IN in applying the 2W + 5H formula in learning and analyzing CBAM to grasp the basic contents of this mechanism!

  1. (What) What is CBAM? 

Carbon Border Adjustment Mechanism – “The Carbon Border Adjustment Mechanism” (CBAM for short) lis an environmental policy tool designed and implemented by the European Union, within the "Fit for 55" Agenda to help the EU reduce greenhouse gas emissions by 55% by 2030 (compared to 1990). ) and further reaching the goal of climate neutrality by 2050.

2. (Why) Why was CBAM issued? 

CBAM was designed from 03 main reasons: 

  • Climate change response target, EU net zero emissions target 

The EU plays a pioneering role in responding to climate change. From very early on, from the late years of the last century to the early 2000s, the EU developed and promulgated policies to respond to climate change.  

During the implementation process, although some results have been achieved, the EU considers that more ambitious climate goals and more drastic action are needed. As a result, they reviewed and issued Fit for 55, with CBAM as part of the agenda. 

  • Carbon leakage 

Since 2004, the EU has issued and built an emissions trading system (EU ETS). Enterprises with production lines located in the EU that cause large emissions will initially be granted certain emission quotas. Once they exceed their assigned quota, they must pay for the excess emissions. This increases costs for businesses in the EU. Therefore, many manufacturing enterprises that cause a lot of emissions have moved production lines out of the EU, to countries with looser environmental policies, no carbon price or lower carbon price than the EU.

  • Imbalance in competition between goods produced in the EU and outside the EU 

When comparing production costs, goods produced in the EU are subject to carbon emission costs from the EU ETS mechanism, while goods produced from outside the EU do not incur this cost. This leads to goods produced in the EU being at a disadvantage in terms of price compared to goods imported from outside the country. 

Therefore, the objective of CBAM is towards a real and comprehensive reduction in emissions, preventing carbon leakage due to EU industries shifting production lines to countries with weak climate policies outside the EU to avoid regulation of the Emissions Trading System (EU ETS). At the same time, the EU Parliament expects CBAM to create a fair business environment and increase competition for EU domestic goods, which are facing fierce competition from goods from Asia and America. 

3. (How) How does CBAM work? 

Before CBAM: 

After having CBAM: 

4. (Where) Where are the goods produced subject to CBAM regulation? 

The European Union affirms that CBAM is not aimed at countries but rather on goods with emissions imported into the EU and with high carbon leakage potential. Detail: 

Initially, there will be 06 types of goods (as above) that are considered to have large emissions when produced and have a high risk of carbon leakage that will be on the list subject to CBAM regulation (listed in Annex II). at Implementing Regulation Document) 

Emissions of goods subject to CBAM include: 

  • Direct or indirect emissions during the production of goods covered by CBAM 
  • If the good is a complex good made from many input materials, the emissions during the production of that input material are also added. 

The figure below shows the boundary used to determine the emissions of goods covered by CBAM. 


5. (When) What is the roadmap for implementing CBAM? 

  • Transition: From October 01, 10 to December 2023, 31 

At this stage, businesses importing goods into the EU must report goods data information and emission levels in those goods on a quarterly basis, but do not have to pay any money yet. Competent authorities will impose fines on businesses that do not do or do not do so on time. At this stage, the EU Commission will rely on the results from the data analysis process to further increase the list of goods subject to CBAM. 

  • Full application phase: Starting from January 01, 01 onwards 
  • From 2026 to 2033: In addition to the obligation to report the emissions of imported goods on a quarterly basis, EU importers will have to buy carbon credits to offset the corresponding goods emissions. At this stage, the list of goods subject to CBAM may have been increased in quantity. And the amount of quota allocated for free under the EU ETS mechanism is also gradually eliminated. 
  • From 2034 onwards: 100% of goods with emissions will have to be offset by carbon credits and no goods will receive a free quota under the EU ETS. 

 

6. (Who) Who are the stakeholders in CBAM implementation (at the transition period from 2023-2026)? What roles and responsibilities do they have?

 

  1. The importer (reporting declarant) – the unit that imports goods from production facilities outside the EU 
  2. For each import order, the importer is responsible for declaring customs with the competent customs authority (in the EU) as usual. 
  3. Customs authorities (in the EU) will notify the European Commission (EC) of customs information. This information will be used to compare with the emission information declared by the importing unit in step (5). 
  4. In each order (under the scope of CBAM), the importer requires the exporter (manufacturing facility or intermediary trader) to provide data on the emissions of the goods. The EU encourages importers to use forms issued by the EU to ensure uniformity and ease of reference. The exporter's declared data can be verified by a third party for added reliability. 
  5. Importers will submit reports on emissions in the goods they have imported on a quarterly basis to the European Commission 
  6. The European Commission will exchange information with competent authorities in member states on customs data and emissions data declared by the parties. The European Commission is responsible for detecting violations in the declaration and notifying the importing unit of the violation to correct them, and also consider introducing appropriate sanctions in the future. 

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