6 minute read 5 Aug 2021
Hiking path along alpine ridge line, Augstmatthorn, Switzerland

Are you ready to meet the requirements of CBAM and fulfill its Environmental, Social and Governance (ESG) obligation?

By Ashish Sinha

Associate Partner Indirect Tax / Global Trade | Switzerland

Business driven approach. Multicultural background. Loves travelling and learning about diverse cultures. Supports sustainable technology for a better working world.

Contributors
6 minute read 5 Aug 2021

What does the Carbon Border Adjustment Mechanism proposal (CBAM) released by the European Commission really mean for the business?  Are you ready to meet the requirements of CBAM and fulfill its Environmental, Social and Governance (ESG) obligation?

Below, we outline key points and provide you with a detailed discussion on what you should know about CBAM right now.

On 14 July 2021, the European Commission adopted a package of proposals to referred as “Fit for 55”. This package aims to align the EU’s climate, energy, land use, transport and taxation policies for reducing net greenhouse gas emissions by at least 55% by 2030. 

The key highlights of the package for the business are:

  • Phase out free emission allowances for aviation and include shipping emissions in the EU ETS (Emission Trading System)
  • Alternative Fuels Infrastructure Regulation requires that aircraft and ships have access to clean electricity supply in major ports and airports
  • Maximum limit on the greenhouse gas content of energy used by ships calling at EU ports
  • A revision of the Energy Taxation Directive proposes to align the taxation of energy products with EU energy and climate policies
  • A new Carbon Border Adjustment Mechanism (CBAM) will put a carbon price on imports of a targeted selection of products to ensure that ambitious climate action in Europe does not lead to ‘carbon leakage’

What is the impact on Swiss business operations?

Swiss companies operating in the EU will also be impacted since they would still need to comply with the CBAM charges and compliance. As per the draft proposal, only EU based entities can register as ‘authorized declarant’. Therefore, entities with operating models involving Swiss principals need to review the form of their presence in the EU.

Swiss businesses managing procurement and distribution should also review the impact on the global procurement and distribution strategy. CBAM incentivizes procurement or manufacturing of specified goods originating in the EU or in countries where carbon emission regulations are already in place. Likewise, CBAM makes it less economical to source specified goods from less sustainability-oriented counties.

Although the draft proposal excludes Swiss exports to the EU from the CBAM scope, there will be an impact on companies with integrated business operations in the EU and for companies importing such covered goods from the EU.

In the detailed Tax News update below, you can find an overview of the scope of CBAM, compliance requirements and action points for the business.  

Hiking path along alpine ridge line, Augstmatthorn, Switzerland

What you should know about the Carbon Border Adjustment Mechanism (CBAM) proposal. Detailed Tax News update.

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Although the regulation is yet to be approved and implemented, some proactive steps can help businesses to prepare in advance:

Evaluate whether CBAM impacts on operations

Examine the purchase data, bill of material, transactional model to ascertain the applicability of CBAM. Please note that even if a company is not directly importing the specified products, the price from its EU suppliers importing such goods could still increase.

Quantify the exposure 

Review the import data to quantify the value and number of transactions with specified goods. Quantify the impact of CBAM cost and compliance.

Identify alternative sources available

Identical goods originating from the EU or other countries with nil/lower CBAM impact or, alternatively, accept the cost impact of sourcing from countries subject to CBAM charges.

Review global value chain and footprint 

They relate to EU region and CBAM implications. For example, serve the EU market from a location within the EU, local-for-local production and consumption.

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Summary

The EU Green Deal and similar initiatives are gradually taking shape in regulations which will make tangible impact on reducing carbon emissions. The impact is not limited to the EU but it is rather spreading across the global sourcing and distribution footprint of the businesses covered by the CBAM proposal. These measures give businesses an excellent opportunity to meet their Environmental, Social and Governance (ESG) responsibility criteria. Swiss companies doing business in the EU and globally should proactively embrace the changes and prepare to align their business model to the new carbon emission regulations.

About this article

By Ashish Sinha

Associate Partner Indirect Tax / Global Trade | Switzerland

Business driven approach. Multicultural background. Loves travelling and learning about diverse cultures. Supports sustainable technology for a better working world.

Contributors