The CBAM Certificate (Carbon Border Adjustment Mechanism) is currently a topic of particular interest to businesses, especially those seeking to export products to the EU market. The European Union (EU) will officially implement CBAM starting in 2026. Thus, what exactly is CBAM and what is the roadmap for its application? Let’s explore this further with Minmax Green through the following article!

 

What is the CBAM certificate?

The CBAM Certificate is a type of emissions certificate utilized to implement a "carbon tax" beginning in 2026.

 

Businesses importing goods into the European Union (EU) will be required to purchase CBAM certificates to offset the emissions generated during the production of their products.

 

Accordingly, businesses importing goods into the European Union (EU) will need to acquire CBAM certificates to compensate for the emissions arising from their production processes. The value of this certificate is determined by the difference between the EU Emissions Trading System (EU ETS) and any carbon pricing mechanisms in the exporting country (if applicable).

To avoid the unnecessary purchase of excess certificates, accurate calculation and reporting of emissions are paramount since unutilized certificates will not be refunded if they exceed the specified limits.

 

Who needs to purchase CBAM certificates?

As of October 1, 2023, the European Union (EU) has implemented regulations regarding the obligation to report emissions through the "Carbon Border Adjustment Mechanism" (CBAM) for six categories of goods that generate high carbon emissions during production, including: iron and steel, cement, fertilizers, aluminum, electricity, and hydrogen.

 

Who needs to purchase CBAM certificates?

 

This implies that producers intent on exporting these products to the EU must acquire CBAM certificates. The European Commission will monitor the effectiveness of this mechanism and may extend it to other products and services in the future.

CBAM could encompass indirect emissions and will likely be applicable to numerous other sectors, particularly those with high energy consumption during production. Sectors potentially affected in the future include energy, minerals, processed foods (sugar, starch, potatoes, tomatoes), textiles, chemicals, construction, and other fields.

 

Features of the CBAM certificate

According to the proposal by the European Commission on July 14, 2021, concerning the regulation of the European Parliament and the Council establishing the Carbon Border Adjustment Mechanism, the CBAM certificate possesses the following characteristics:

• Unique unit identification code: Each CBAM Certificate will be assigned a distinct identification code, along with details regarding its value and sale date (Article 20).

• Buyback rights: The declarant has the right to request a buyback of up to one-third of the CBAM certificates purchased in the previous year, at the original price. This request must be submitted by June 30 each year (Article 23).

• No trading permitted: CBAM certificates are not allowed to be traded among importers, in contrast to the regulations of the EU ETS.

• Validity period: CBAM certificates purchased from the previous year will expire on June 30 each year and will be invalidated if still present in the account of the declarant in the national registry (Article 24).

• Deadline for certificate submission: The authorized declarant must submit a quantity of CBAM certificates corresponding to the reported and verified emissions by May 31 each year (Article 22(1)).

• 80% threshold by the end of each quarter: The declarant must maintain the number of CBAM certificates in the account at least equal to 80% of the emissions calculated for imported goods from the beginning of the year to that point (Article 22(2)).

 

Benefits of the CBAM certificate

Overall, the CBAM certificate aims to address issues related to climate change, ensuring a level playing field for industries. Additionally, possessing a CBAM certificate provides benefits such as:

Encouraging the use of clean energy

The CBAM and carbon tax will incentivize businesses to invest in clean energy sources, thereby reducing greenhouse gas emissions and saving costs. This also creates opportunities for businesses to develop and adopt clean technologies and renewable energy.

 

Expanding market opportunities

Holding a CBAM certificate demonstrates that a business meets greenhouse gas emission standards, facilitating easier entry for their products into the EU market and other regions with similar requirements. This presents an opportunity for businesses to not only expand their market reach but also increase revenue.

 

Promoting technological innovation

The CBAM Certification encourages businesses to innovate technologies and enhance production processes. By integrating clean and efficient technologies, businesses can not only comply with greenhouse gas requirements but also produce higher-quality products.

 

The CBAM certification encourages businesses to innovate technologies and improve production processes

 

The process for obtaining the CBAM Certificate

The following outlines the process for obtaining a CBAM certificate which businesses may find useful:

 

Status assessment Information gathering

Businesses will receive assistance in identifying the primary emission sources within their production processes to accurately measure emissions.

 

The process for obtaining the CBAM Certificate

 

Information gathering

Consultants will guide businesses in collecting the necessary data for calculating greenhouse gas emissions.

 

Emission calculation assistance

Project experts will aid businesses in accurately calculating emissions based on the provided documents and records.

 

Review and finalization of the report

Consultants will assist businesses in reviewing and finalizing the CBAM report before submission to partners or clients.

 

Price of the CBAM Certificate 

The European Commission determines the price of the CBAM certificate based on the average price of allowances in the EU Emissions Trading System (EU ETS), calculated from auctions as stipulated by Regulation (EU) No. 1031/2010. This price will be updated weekly. In the absence of an auction during the week, the price will be based on the average of the previous week that had an auction.

This price will be announced on the first working day of the following week and remains effective until the first working day of the subsequent week. 

According to the draft Regulation of the European Parliament and Council concerning the Carbon Border Adjustment Mechanism (COM(2021) 564 final, 2021/0214 (COD)), to ensure CBAM effectively prevents carbon leakage, the price of certificates must closely reflect that of the EU ETS. 

 

Conclusion 

The CBAM Certificate is becoming a crucial element for businesses currently and planning to export to the European Union. With its implementation roadmap set for 2026, comprehending the process, value, and benefits of the CBAM certificate will enable companies to prepare accordingly and optimize their production strategies, while concurrently meeting stringent environmental protection requirements.