The Carbon Border Adjustment Mechanism (CBAM) and compliance obligations in Germany

The European Union Regulation 2023/956 establishing the Carbon Border Adjustment Mechanism (CBAM) entered into force on 17 May 2023. This new EU law is aimed at preventing “carbon leakage”. Companies operating in carbon intensive industries are to be dissuaded from moving their operations outside the EU where there are less stringent climate laws.

It seeks to put a fair price on the carbon emitted during the production of carbon intensive goods imported into the EU from third countries, and to encourage cleaner production in non-EU countries.

These requirements will be introduced gradually – the immediate concern is the reporting of imports in the fourth quarter of 2023 – with the first report on quantity and emissions from those goods needing to be made in January 2024.

Further requirements will apply from 2026 – including the need to apply to be an authorised CBAM declarant and the need to buy CBAM certificates. From 1 January 2026, only “approved CBAM declarants” may import the goods listed in Annex I of the Regulation and must purchase so-called CBAM certificates for the tonnes of CO₂ equivalents contained in the imported goods. The price for the CO₂ certificates will be based on the CO₂ price paid by manufacturing companies in the EU as part of emissions trading (weekly average of certificate prices on the European Union Emissions Trading System – EU ETS).

The following points are of particular interest for corporate practice:

• Reporting obligations during the transition period
• Applicability of the reporting obligation
• Deadlines for submission of the CBAM report
• Contents of the CBAM report

• After the transition phase: Application for the so-called “authorised CBAM applicant” and reporting obligations

Reporting obligations during the transition period

During a transitional period from 1 October 2023 to 31 December 2025, the Regulation will only apply with limited obligations for importers or designated indirect customs representatives of affected goods. From 1 January 2026, the regulation will be fully applicable.

Importers or designated indirect customs representatives who import goods affected by Regulation (EU) 2023/956 are obliged to report to the EU Commission in accordance with Art. 35 of Regulation (EU) 2023/956. This means that the importers or indirect customs representatives concerned must submit a so-called “CBAM report” to the EU Commission. The importers or indirect customs representatives are not required to report to the German customs administration during the transitional period.

Applicability of the reporting obligation

The exact product scope covered by CBAM is set out in Annex I to the Regulation and is determined by the CN code. CBAM applies to greenhouse gases emitted during the production process of the goods covered. Carbon dioxide is the main greenhouse gas covered, and nitrous oxide and perfluorocarbons from some processes are also included.

Goods covered include:

• aluminium, cement, electricity, fertilisers, iron, steel;
• Pre-products and some downstream products made of iron, steel and aluminium (e.g. pipes, structures, containers, drums, screws); and
• hydrogen and ammonia.

Goods from inward processing procedures may also be subject to the CBAM Regulation. The commodity code/customs tariff number used for the import is decisive in determining whether a product falls under CBAM. If this is listed in Annex I of the CBAM Regulation, the goods are covered by the Regulation. By 2030, CBAM is to cover all sectors that are also covered by EU emissions trading.

The following imports, among others, are exempt from the CBAM reporting obligation:

• Imports from EFTA countries (Iceland, Norway, Liechtenstein and Switzerland) and some territories (e.g. Heligoland);
• Goods listed in Annex I of Regulation (EU) 2023/956 whose total value per consignment does not exceed EUR150; and
• Goods in personal luggage within the value limit of EUR150.

Deadline for submission of the CBAM report

The CBAM report must be submitted to the EU Commission for goods imported during a quarter in accordance with Annex I of Regulation (EU) 2023/956 no later than one month after the end of the quarter. The first CBAM report must be submitted for the first time for the fourth quarter of 2023.

The deadline for submitting the CBAM report during the transition phase is one month after the end of each quarter.

Submitting the CBAM report will take place via the provisional CBAM register. Access to the provisional CBAM register is granted by the national competent authority. This national competent authority has not yet been determined for Germany.

Contents of the CBAM report

The information required for the CBAM report results in particular from Art. 34 and 35 para. 2 of Regulation (EU) 2023/956:

• Total quantity of each type of goods in megawatt hours for electricity and in tonnes for other goods, broken down by the facilities producing the goods in the country of origin;
• actual total grey emissions in tonnes of CO₂ emissions per megawatt hour of electricity or, for other commodities, in tonnes of CO₂ emissions per tonne of each commodity type, calculated in accordance with the methodology set out in Annex IV;
• total indirect emissions, calculated in accordance with the implementing act referred to in paragraph 7; and
• CO₂ price to be paid in a country of origin for the grey emissions associated with the imported goods, taking into account any available export refund or other form of compensation.

After the transition phase - from 1 January 2026

Applicant as a so-called “authorised CBAM applicant”

Regulation (EU) 2023/956 will apply in full from 1 January 2026. From this date, goods affected by CBAM can only be released for free circulation if the declarant is an “authorised CBAM declarant”. For this purpose, a so-called “CBAM account number” (see Art. 16 of Regulation (EU) 2023/956) must be indicated in the customs declaration. The EU Commission plans to create a corresponding document coding for this purpose, which must then be indicated in the customs declaration for release for free circulation.

Customs procedures other than release for free circulation are not affected by Regulation (EU) 2023/956 with regard to the customs declaration.

Application for an “authorisation as CBAM applicant”

The rules on applying for “authorisation as a CBAM declarant” in accordance with Articles 5 and 17 of Regulation (EU) 2023/956 only apply from 31 December 2024 (Article 36(2)(a) of Regulation (EU) 2023/956). Each importer established in a Member State shall apply for the status of an authorised CBAM declarant before importing goods into the customs territory of the Union. The application for authorisation shall be submitted via the CBAM register established by the European Commission in accordance with Article 14.

CBAM declaration as “authorised CBAM applicant”

CBAM applicants must submit their annual CBAM declaration for the previous year via the CBAM register by 31 May for the previous year. The first report - for the year 2026 - must therefore be submitted by 31 May 2027.

The declaration must contain the following information:

• Total volume of imports;
• Total quantity of emissions in tonnes of CO₂ emissions per tonne of goods type;
• Total number of corresponding CBAM certificates; and
• Test reports from accredited auditors who verify the emissions data.

Key Takeaways

Since the CBAM report must be submitted for the first time for the fourth quarter of 2023 and must be submitted no later than one month after the end of the quarter, i.e. no later than 31 January 2024, it is necessary for the companies concerned to deal with CBAM now at the latest and set up appropriate compliance mechanisms to meet the CBAM reporting obligations.

In addition to the possible purchase of CBAM certificates after the end of the transition phase, companies should already calculate and document the emissions generated during the production of imported goods. It is also necessary to identify the manufacturers of the respective goods and to request information from them regarding the respective emissions. In particular, it makes sense to discuss whether carbon taxes are already being paid in the country of origin.

In the event of breaches of CBAM reporting obligations, sanctions can be imposed in the same way as for trading in greenhouse gas emission allowances.

DLA Piper's tax law team will be happy to answer any further questions you may have in this context. Give us a call or send us an e-mail.