Starting from this year EU Commission CBAM reporting obligations came into effect. Importers of six categories of goods (iron and steel, aluminum, nitrogenous fertilizers, cement, electricity, and hydrogen) are required to report their carbon footprint – direct and indirect emissions of imported goods. Until the definitive period, which starts from 2026, there are no financial obligations or carbon fees associated with ‘imported emissions’. Starting from 2026 and until 2034 free emission import allowances will be gradually replaced with emission payments for carbon footprints exceeding certain level. But until then, there are only reporting obligations.

Reports on carbon footprint of imported goods are to be submitted on a quarterly basis starting from the third quarter of 2023 with first reports due end of January 2024. The Commission has developed extended and detailed regulation and guiding documents on how to calculate and report emissions of imported goods.

Emission calculation methodology of the transitional period (2024-2026) becomes more stringent in time. Until the 31st of July of 2024 (i.e. for the first three quarterly CBAM reports) emissions may be reported based on default values published by the Commission. Until the 31st of December of 2024, emission numbers may be taken from emission monitoring schemes of installations, including for carbon pricing purposes. And starting from the 1st of January of 2025 estimations and default values may constitute only 20% of reported embedded emissions. So, starting already from the 1^st of August of 2024, process of preparing reports should include requests of information from non-EU suppliers, and potentially their suppliers, and so on along the value chain up to primary commodities producers, such as pig iron, basic aluminum, cement clinker, and basic fertilizer components.

Even though reporting requirements for the third quarter of 2023 are most simple, European importers already faced a number of difficulties in reporting.

1. Technical difficulties in obtaining access the CBAM Transitional Registry: several countries’ CBAM authorities were not technically ready to provide access to the system. And the system is often down for maintenance. To compensate for this, the Commission extended reporting deadline for the first report until the end of February 2024.
2. Navigating through the complexities of the CBAM Transitional Registry structure and requirements.
3. Difficulties in identifying producing installations and their operators: quite often importers purchase goods from intermediary trading companies and not from direct producers. So, importers may not even know which factories actually produced goods they import.
4. Importing XML files and validating data: imported data may not fit the registry’s technical data requirements; some required information may be missing (such as additional information) and production process.

And this is just the beginning. As reporting requirements get more stringent per the EU regulation, more complex issues will arise, making life of EU importers increasingly difficult. According to the Commission rules, importers need to report not only emissions of the production site, but also embedded emissions of precursors, that are used to produce CBAM goods and are in scope of CBAM regulation. For example, an EU importer of nuts and bolts must report emissions arising from production thereof from its non-EU producer (let’s say a factory in Turkey), as well as emissions, associated with production of steel rods, that are used by this Turkish plant as feedstock, and may originate from yet another country (for example, Ukraine or Russia). This value chain may be quite long, and collecting information on emissions of all actors along the chain is a highly burdensome task.

But the length of the supply chain itself may not be the only complexity. Many suppliers do not want to disclose information about their emissions to third parties. That means, that a factory in Russia or Ukraine may disclose its emissions only to its direct clients (Turkish nuts and bolts factory) and prohibits further disclosure to third parties down the supply chain, e.g. EU importer of nuts and bolts.

And even if an EU importer manages to identify all players of the production chain of his imports and agrees on information disclosure, factories down the line (producers of steel bars in Ukraine or Russia) may not have emissions information handy as it is required by the complex CBAM methodology. In this case EU importers will need to make many assessments and assumptions, and emission reporting becomes a highly complex task.
What is surprising, is that CBAM legislative contributing authors, such as the Austrian Umwelt Bundesamt (Environmental Agency), have already documented most if not all CBAM goods production routes, emission factors and other calculation variables. Considering huge but limited number of worlds producers of primary CBAM goods (iron slabs, primary aluminum, cement clinker, ammonia, and power) the task of calculating emissions of all these plants seems difficult and time consuming but manageable. The financial burden of doing this centrally would be multiple times lower, as compared to delegating this task to numerous EU importers, who may need to do these calculations in parallel repeating what have already been done by their peers. So, a solution to the problem may be in building a comprehensive database of key global producers of CBAM goods, which will serve as a primary emission benchmark / assessment source if direct information from these producers is missing. Doing this by the Commission and granting access to EU importers would have saved significant money currently being spent by EU importers on consulting companies.

To help our clients with emission reporting after July 1^st, 2024 we at CBAMReports.com are working on compiling a database of CBAM goods producers worldwide. We collect and analyze information on each plant of CBAM goods producers in all countries. Our Emission Tracker^TM database already has information on most producers of primary steel, aluminum, cement, and fertilizers, covering up to 95% of EU imports in some sectors. Information includes installations’ activity level by CBAM good, production routes, main energy and feedstock supplies, and auxiliary information required by the Commission (addresses, coordinates, contact details and etc.) This information allows EU importers to report emissions of produced CBAM goods with high accuracy following rules of the Commission.

Check our website for more details and get in contact with us to have your next CBAM report done according to the Commission requirements, getting an XML file for automatic upload complimentary to the report preparation service.