The EU CBAM regulation has been officially approved and is in effect. It was published in the Official Journal of the EU on May 16, 2023. The transition phase began on October 1, 2023, and the full permanent system will take effect on January 1, 2026.

The EU CBAM covers high-emission products, including electricity generation, cement, aluminum, fertilizer, iron/steel, and hydrogen. Some upstream and other downstream products (e.g., screws and bolts) are also included.

The EU Emissions Trading System (ETS) sets a cap on greenhouse gas (GHG) emissions for certain industrial installations within the EU. Allowances are purchased on the ETS trading market. The EU CBAM complements the EU ETS by covering goods imported from outside the EU. Once fully implemented, it will cover more than half of the emissions in ETS-covered sectors. Unlike the ETS, the EU CBAM does not have a “cap-and-trade” system. The price of EU CBAM certificates will reflect the weekly average EU ETS carbon price.

During the EU CBAM transition period, only the upstream emissions of certain goods— namely, complex goods—are included. Difference between simple and complex goods under the EU CBAM: Simple goods do not include any embedded emissions from upstream materials or energy. The only emissions considered are those directly associated with their own production process. Complex goods, on the other hand, do have some embedded emissions from upstream materials. For example, aluminum ingots are considered a simple good: the production emissions from bauxite, alumina, anodes, and all other materials and energy used in producing the aluminum ingot are not included in its carbon footprint calculation. Products that use aluminum ingots as inputs are considered complex goods: the emissions from producing the aluminum ingots must be included in the carbon footprint calculation for these products.

Default values for the EU CBAM will be provided in the transition registry by the end of 2023. These are global averages for each CN (product) code. Four key points to note: If suppliers do not provide data before July 31, 2024 (i.e., for the first three reporting quarters), importers may use these default values. Suppliers may use 100% of emissions default values (the same as the importer) before July 31, 2024. If these default values account for less than 20% of total emissions, they may be used long-term (essentially, this applies when installations are complex, using them for precursor products). Goods may use other default values (i.e., not from the EU CBAM registry), provided the declarant indicates this in the report and references the methodology used to establish these values. The EU intends to set default values higher than the average actual value to encourage the use of actual data in reporting.

During the transition period (until December 31, 2025), importers will face fines for failing to report or underreporting emissions. The exact fines are yet to be finalized, but for each ton of CO₂ equivalent not reported or underreported, the penalty will range from €10 to €50. Before July 2024, importers may use default values for reporting. After this date, primary data will be required (unless upstream emissions covered by CBAM account for up to 20%) to avoid fines.

Specific Embedded Emissions (SEE): The amount of CO₂ emitted per ton of a specific product (tCO₂e).
ATTrEmg: The total carbon emissions generated in the production of the product.
Direct emissions: Emissions from energy used in producing the specified product, such as fuel or natural gas (including heating and cooling).
Indirect emissions: Carbon emissions from electricity consumed in producing the specified product.