EU Carbon Border Adjustment Mechanism impact on U.S. exporters and cargo firms
New EU regulations on carbon emissions create uncertainty and could negatively impact U.S. exporters and cargo operators. Passed in December 2022, the EU’s new Carbon Border Adjustment Mechanism (CBAM) regulates the importation of carbon-intensive products by charging a carbon price on certain goods entering the EU. Alongside functioning in tandem with the EU’s climate action, it aims to encourage cleaner production and prevent carbon leakage outside the EU.
CBAM went into a transitional phase on October 1, 2023, which will last until December 31, 2025. The legislation aims to guarantee imported goods are treated similarly to EU-produced products by ensuring that the total carbon price of imports is equal to goods produced in the EU. It aims to prevent companies from outsourcing production to avoid the EU’s Emissions Trading System (ETS), which caps the amount of greenhouse gas emissions from industrial or power production. Companies within these sectors can buy allowances, as well as receive free ones accordingly.
The sectors that will be initially affected are cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. Chosen for their high emissions and risk of carbon leakage, the EU estimates regulating these sectors will represent a 50% capture of emissions under ETS. CBAM may eventually extend to other sectors covered under ETS after the transition phase concludes. By 2034, the aim will be to cover over half of emissions in the EU ETS sectors.
CBAM requires that EU importers register their goods through national authorities where they can buy CBAM certificates (calculated based on the weekly average auction price of EU ETS allowances). Starting in 2026, at the end of each year, these companies will declare the emissions of their imports and surrender the corresponding number of certificates.
Starting in 2024, companies have only three choices for reporting the emissions from their imports. The official EU method (which will be the only choice starting January 1, 2025) is based on the EU’s newly developed methodology. The other two choices were temporary. Until July 2024, companies could use default reference values; after July 2024, they may only use default values for up to 20% of the embedded emissions.
According to CBAM regulations, the importer is responsible for submitting emissions data on imported products. This data must originate from the producers themselves. The reporting declarant—who will receive access credentials to the CBAM Registry—must be an indirect customs representative hired by the importer. For EU established importers, cargo operators are not responsible to report on their behalf; for non-EU established customers, though, cargo operators may function as the indirect representative and would report the emissions for importers.
Starting in 2026, importers will begin to incur fees. The transition phase is intended to be a learning period for importers, producers, and authorities. By the middle of 2025, the Commission is planning to review the lessons learned from the transitional period to make adjustments to the process before entering 2026.
U.S. industry has raised a number of concerns related to compliance. U.S. exporters want better clarity on requirements for gathering carbon data from sub-suppliers and associated liabilities related to suppliers unable to provide complete carbon emission data during the transition period, as well as after. Cargo operators raised concerns on their obligations as indirect customs representatives, to comply with the legislation. These restrictions create ambiguity in terms of their roles and liabilities.
Cargo operators are looking for clarification on the potential administrative impact at the border and its associated liabilities. Representatives have requested a longer timeframe to ensure a smooth transition and help companies better meet the new compliance standards.
The U.S. Commercial Service at the U.S. Mission to the EU (CSEU) continues to engage the European Commission on this issue on behalf of U.S. industry by hosting industry roundtables with industry leaders, EU Member States, and senior European officials. If your industry may be affected by this policy initiative in any of the EU Member States, please contact CSEU Senior Commercial Specialist Alina Moglan and Commercial Officer Nathan Donohue for additional guidance and support.