Reporting from third quarter 2024
During the transition period, until 31 December 2025, there are several options for calculating and reporting the embodied emissions of imported goods. The legislation provides some flexibility until the end of 2024. Until the second quarter of 2024, the European Commission allowed CBAM declarants, when reporting embedded emissions, to use default values if they did not have all the required data. These default values were specifically intended for the first few quarters and were not mandatory. Companies could also use other methods, provided they offered comparable coverage and accuracy and the chosen methodology was clearly stated and justified in the reports.
From the
third quarter of 2024, stricter requirements will apply, and CBAM declarants
will have to choose from the following methods:
-
Full
reporting according to the new EU methodology (EU methodology).
-
Reporting
based on an equivalent methodology, including:
- Carbon pricing at the site of the plant.
- Mandatory emission monitoring scheme at the site of the installation.
- Monitoring of emissions within the installation, possibly with verification by an accredited inspector.
This report – covering the third quarter of 2024 – must be submitted by 31 October 2024 at the latest.
The European Commission has developed various tools for the calculation methods, such as guidelines and templates. These serve to support declarants in obtaining the necessary data from producers. In practice, however, it often turns out to be a challenge to obtain reliable information.
Reporting from 1 January 2025
From 1 January 2025, only the EU methodology for reporting embodied emissions will be allowed. Estimates, such as the default values, may then only be used for complex goods and only if they account for less than 20% of the total embodied emissions. The transition period offers companies the opportunity to familiarize themselves with the new requirements and gradually adapt the necessary methodologies and reporting systems. These stricter requirements serve as preparation for the final introduction of the carbon tax on 1 January 2026.
The
European Commission aims to ensure that declarants gradually calculate and
report the actual embedded emissions in an increasingly concrete way. It is
therefore essential for CBAM declarants to switch to the EU methodology in a
timely manner and to ensure that all the necessary data for complete and
accurate reporting is available.
Application for approved declarant
From 1
January 2026, only authorised declarants will be able to import CBAM goods. It
should be possible to submit an application to act as a CBAM declarant from 1
January 2025. However, the exact procedure is not yet fully clear. The European
Commission will come up with regulations before that date. Nonetheless, it is
known that certain information must be provided with the application,
including:
-
The
estimated monetary value and volume of goods that the applicant intends to
import into the European Union, by type of goods, for the current and
subsequent calendar year.
-
Information
on the applicant's financial and operational capacity, possibly supported by
documents such as the annual accounts and balance sheet.
In addition, a certificate must be provided showing that the applicant has not been involved in serious or repeated violations of customs legislation, tax regulations, or market abuse rules in the last five years and does not have a criminal record with serious offences related to its economic activities.
Lack of concrete data, the assessment of the NEa
For the third quarter of 2024, the Netherlands Emission Authority (hereinafter: NEa) has drawn up an assessment framework that it will use in enforcing CBAM regulations. The enforcement by the NEa is triggered by the checks carried out by the European Commission on the CBAM reports. Whereby these reports are compared with the import declarations. If irregularities are found concerning CBAM declarants in the Netherlands, the Commission informs the NEa.
The NEa can then take three possible actions:
- inform;
- warn; or
- start a correction procedure.
Whether a correction procedure is initiated depends, among other things, on the extent of the unreported or insufficiently reported CO2 in tonnes, recidivism or the suspicion of intent.
In the event of a correction procedure, the NEa requests the CBAM declarant to submit a new or corrected report within a set period. If this is followed by insufficient effort by the declarant, a fine of €10 to €50 per tonne of unreported CO₂ may be imposed.
The
best-efforts obligation is weighed 'on the basis of the specific circumstances
of the individual case' (1).
It is clear that this can – especially in the beginning – lead to a strongly
casuistic and subjective assessment. The assessment framework mentions the
following elements which are considered:
-
Volume
of embodied emissions: declarants importing goods with high embodied emissions
(> 250 tonnes of CO2) have to make more efforts than declarants
with lower emissions.
-
Availability
of emissions data:
- No emissions data: The declarant must persuade the producer to find out the requested data, inform the producer about CBAM and show evidence of efforts, such as correspondence. In the case of high emissions, additional actions are required, such as applying pressure or finding another producer.
- Emission data: The declarant must check the data for completeness and obvious errors. In the case of high emissions, plausibility checks are also expected.
- Proof of efforts: Actions must be demonstrable by, for example, correspondence with producers or suppliers. If data is missing, estimates must be accounted for and actions taken must be reported.
The NEa has indicated that it imposes higher fines on declarants if two or more incomplete or incorrect reports are submitted or if the shortcomings persist for more than six months.
The assessment framework makes it clear that enforcement depends to a large extent on the individual situation and the degree of demonstrable effort of the CBAM declarant. Therefore, it is important to make these efforts and document them thoroughly.
Finally
The above shows that the rules on CBAM will be subjected to stricter measures in the coming period, exactly as envisaged during the transition phase. It is important to always submit the report and to take continuous steps towards a complete report (EU methodology). If we can provide you with advice on this, we are of course ready to help.
(1) From: 'Wegingskader handhaving rapportageverplichting overgangsperiode CBAM', Netherlands Emission Authority, publication date 24 June 2024.