Navigating the EU Omnibus Simplification Package - CBAM

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In this article, our Sustainability-Tax experts explain the expected changes to the CBAM regulation under Omnibus and what companies can do now to prepare.

In brief

• The CBAM aims to reduce greenhouse gas emissions while ensuring fair competition for EU businesses against non-EU imports.
• The Omnibus Simplification Package enhances CBAM by reducing compliance burdens, extending timelines, and supporting competition in sustainability efforts competitiveness.
• CBAM's gradual expansion will cover more sectors, promoting low-carbon technologies and addressing carbon leakage risks effectively.

Recap of the legislation

The Carbon Border Adjustment Mechanism (CBAM), a proposal by the European Commission, is part of the "Fit for 55" legislative package and aims to establish a carbon price on products imported into the European Union (EU). This mechanism is crucial for the EU's strategy to reduce greenhouse gas emissions and achieve carbon neutrality. The CBAM seeks to prevent "carbon leakage," ensuring that climate actions in Europe do not create competitive disadvantages for local producers. It imposes a carbon price on imports for products such as cement, electricity, and iron and steel and aluminium, with the gradual higher financial impact linked to the phase-out of emission exemptions under EU ETS. The next phase of CBAM will start on January 1, 2026 and require EU importers of CBAM covered goods (provided they reach the threshold of 50t per year) to be “Authorized CBAM declarants”. Companies importing emission-intensive goods must report their emissions and acquire CBAM certificates. A transition period (from October 1, 2023 to December 31, 2025) allows companies to adapt to the new obligations without financial impact. Companies that fail to comply will face financial penalties and may no longer be able to import CBAM covered goods into the EU. The implementation of the CBAM will be overseen by National Competent Authorities (NCA), highlighting the need for companies to quickly prepare for these changes, which will impact costs and competitiveness, especially in emissions-intensive industries.

Proposed changes in the EU Omnibus Simplification Package

The proposed changes in the EU Omnibus Simplification Package aim to align with the EU's environmental objectives and achieve administrative simplification targets of 25% for all businesses and 35% for SMEs. The key amendments include:

• De Minimis Threshold: EU Importers of small quantities of CBAM covered goods (up to 50 tonnes per year) are exempt from compliance obligations.
• Certificate Purchase Date: The obligation to purchase certificates for CBAM goods imported in 2026 is deferred to February 2027.
• Authorization Procedure: Allows delegation to qualified third parties while maintaining legal liability.
• Declaration Submission Extension: Extends the annual submission deadline for declarations from May 31 to August 31 of the following year.
• Data Collection Processes: The carbon price paid in a third country can be deducted from the required number of certificates, with evidence of rebates needed.
• Precursors: Embedded emissions from input materials produced in countries under the EU ETS are excluded from calculations, as are certain downstream production processes for steel and aluminum.
• Access to CBAM Registry: Accredited verifiers and parent companies can access the CBAM registry to register and share relevant data.
• CBAM Certificates Holding Requirements: The quarterly requirement to hold CBAM certificates is reduced from 80% to 50% of the embedded emissions in imported goods.
• Changes to Products in the Scope of CBAM: Only direct emissions from electricity will be considered; non-calcined kaolin clay has been removed from the scope.
• Enforcement and Penalties: Strengthened anti-abuse provisions and a joint anti-circumvention strategy with national authorities. New provisions allow for discretion to reduce penalties for negligible or unintentional errors, while deliberate infringements will face increased penalties.