CBAM transition period comes into effect
On 1 October 2023 the transition period of the European Union's Clean Border Adjustment Mechanism (CBAM) regulation to control embedded emissions in imported goods including cement, will commence. Urszula Szalkowska, Managing Director at EcoEngineers, Poland, explains how it will work.
The CBAM regulation covers several goods groups, including cement clinkers, white Portland cement, other Portland cement, other hydraulic cements, aluminous cement, and other kaolinic clays. Importers must accurately identify whether their imported products fall under the specified Combined Nomenclature (CN) codes, which are the EU's version of HS (Harmonised System) codes for international trade classification.
During the transition period of CBAM, which spans from October 2023 to December 2025, importers are required to report direct and indirect emissions resulting from the production of the imported good and production of input materials (precursors). Detailed reporting is specified for each cement type, covering factors such as calcination of raw materials, fuel combustion, and carbon content in various production processes.
Direct emissions must be correctly attributed to imported products; importers should also report quantities of raw or semi-finished material inputs and determine embedded emissions of these precursors. The regulation also recommends that foreign manufacturing facilities voluntarily have their emissions data and embedded emissions data verified by independent verifiers.
From 2026 onwards, if a carbon price has been paid by the foreign manufacturer in a foreign country, for producing goods and precursors, it may lead to a reduction in CBAM prices. During the transitional phase, information on foreign carbon taxes must be reported by the importer, so the European Commission can analyse the data and avoid double taxation as CBAM enters the definitive period in 2026. If no information is reported, it will be assumed that there were no carbon taxes on the goods and precursors in their country of origin.
Leveling the playing field
The reason for CBAM's implementation is to set a level playing field for existing cement producers in the EU with those importing competing products. The EU’s Emission Trading Scheme (ETS) has resulted in approximately a 35 per cent reduction in CO2 emissions since 2005. However, some manufacturers avoided the ETS by setting up outside the EU borders and have continued to export to the EU with no penalty for their emissions. This is why CBAM is being introduced to level the playing field.
CBAM Timeline
The CBAM system aims to mirror the EU ETS. Starting in 2026, importers will be required to purchase CBAM certificates for the embedded carbon in cement imports that are above the limits set by the rules less any carbon price was paid in the country of origin. The price of a CBAM certificate will be based on the weekly average price of the EU ETS allowance. An independent accredited verifier must verify the reported emission's accuracy. By May 31, importers will surrender the purchased CBAM certificates and thus ensure all the cement consumed in the EU has the same emissions from manufacturing.
Acknowledging the challenges associated with implementing such a complex rule, the EU is requiring importers to only report data in 2024 and 2025 without a requirement to purchase CBAM certificates. Cement importers are required to submit their first reports by January 31, 2024.
During the reporting period, importers can use emissions calculations from foreign countries to report embedded emissions, but starting in 2026, the EU calculation methodology with its emissions factors must be used.
Unilateral regulatory globalisation
CBAM exemplifies the EU's approach to unilateral regulatory globalisation, a concept that has been called The Brussel’s Effect. Instead of negotiated standards under treaties or international agreements, the EU uses its buying power to externalise its regulations beyond its borders through market mechanisms.
The CBAM regulation indirectly dictates how foreign producers must measure their emissions. Moreover, it also demonstrates how carbon markets are maturing and becoming globalised. CBAM will require an EU-specific “low-emissions” label on cement. As more manufacturers across the globe comply with these rules, it will have a far-reaching effect on global cement supply chains.
