EU CBAM - New consultations on authorizing CBAM Declarants and establishing a CBAM Registry

On 30 and 31 October 2024, the European Commission published two draft Implementing Regulations regarding the European Union's (EU's) Carbon Border Adjustment Mechanism (CBAM) on the application to become an Authorized CBAM Declarants and Establishing a CBAM Registry, respectively. Both Implementing Regulations are a requirement for the full implementation of the CBAM. The draft Regulation on how to be an Authorized CBAM Declarant sets out the key procedures and conditions for authorizing CBAM Declarants in the EU, which should apply from 24 December 2024 to provide sufficient time for the information technology (IT) system development of the CBAM Registry to be operational by 1 January 2026. Interested businesses have until 27 and 28 November, respectively, to submit comments via the EU's "Have Your Say" platform.

1. Authorized CBAM Declarants

On 30 October 2024, the European Commission published a draft Implementing Regulation for the application to become an Authorized CBAM Declarants. The draft Regulation is critical to all CBAM Declarants, whether they are importers or the indirect representatives of non-established importers and defines the conditions that these parties will need to meet to apply for and maintain a CBAM Declarant authorization. The draft Implementing Regulation provides procedures and criteria to be met by the Commission, competent Member State authorities and applicants, as highlighted below.

► Application process and timing

Applications will be submitted electronically in the Member State of the applicant's establishment. The Competent Authority will have 120 days from receipt of the application to assess the application. The assessment will include a consultation phase in which the Commission and other Member States (together the "consultation parties") can provide input on the assessment. The final decision will be communicated in the CBAM Registry.

► Criteria for assessment

Applicants will be assessed on the basis of the criteria outlined in the CBAM Regulation, including whether: the applicant has an EU Economic Operator Registration and Identification (EORI); the application is submitted in the Member State of establishment; the applicant has been involved in serious or repeated infringements of customs legislation, taxation rules, etc. related to the CBAM Regulation in the previous five years; and the applicant can demonstrate financial and operational capacity to fulfill its obligations under the CBAM Regulation.

► Conditions for financial and operational capacity

The applicant must meet four conditions:

I.Not be subject to bankruptcy proceedings.

II.Not be in arrears with the payment of customs duties, taxes or other charges related to the import of goods and its economic activities.

III.Demonstrate sufficient financial standing to meet its obligations and commitments.

IV.Have an (adequate) organizational administration, including internal controls, suitable for managing its CBAM compliance and CBAM certificate obligations.

Competent Authorities will assess additional factors, such as the estimated volume of imports and the annual CBAM certificate obligations as part of application.

► Guarantee

Applicants established for less than two financial years at the time of making their application will require a guarantee to be recorded in the CBAM Registry. Per the CBAM Regulation, the Competent Authority will fix the amount of the guarantee; it is the Declarant's responsibility to monitor and ensure the guarantee is sufficient to cover the number of CBAM certificates.

► Reassessment, revocation and right to be heard

The Competent Authority will monitor the compliance of the authorized Declarant and, in defined scenarios, may reassess the status of the authorization. If the Declarant is found to be noncompliant, the Competent Authority may revoke the authorization on the basis of insufficient processes to calculate and surrender CBAM certificates, intentional or negligent behavior, among other criteria. As with the application process, the revocation process is supported by a period of consultation, after which the Declarant may exercise their right to be heard before the authorization is revoked. The Declarant may also trigger the revocation process. In both cases, the Implementing Regulation defines the CBAM compliance requirements to be followed.

2. Establishment of a CBAM Registry

On 31 October 2024, the European Commission published a draft Implementing Regulation for Establishment of a CBAM Registry. The Registry will be a hub for CBAM compliance and reporting obligations for all parties involved, giving access to designated portals for:

I. CBAM Declarants

II. CBAM National Competent Authorities

III. CBAM European Commission

IV. CBAM Operators

V. The public CBAM website

The portals will be interactive with a number of existing EU systems, including the EORI system, Integrated Tariff of the European Union (TARIC) and the national customs authorities’ data systems. All of the information stored in the Registry will be considered confidential with defined parameters for data access, such as authorized CBAM Declarants having access to their own personal data, as well as data registered by operators who have granted the Declarant access.

Next steps for the draft Regulations

Once the European Commission has reviewed the comments received, the Commission will make any necessary changes to the draft Implementing Regulations with a view to adoption by the end of 2024.

Next steps to consider

Affected businesses will want to consider actions such as:

• Identify all entities subject to CBAM obligations to apply for the Authorized CBAM Declarant authorization. In addition to the entities already exercising the CBAM reporting in the CBAM transitional period, businesses will want to consider which other entities may fall under CBAM regulation with their imports based on planned business operations.
• Assign responsibilities related to CBAM compliance and certificate management obligations.
• Prepared documented internal processes, controls and escalation procedures for the management of CBAM compliance and certificates.
• If not already accomplished, carry out a gap assessment of the CBAM compliance processes and data management practices in place to manage obligations. Where gaps or risks are identified, mitigation actions should be taken.
• Continue to monitor and assess legislative developments on this topic.