What are default values for CBAM?

What are default values for CBAM?

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Many organizations are scrambling to understand the default values for the EU's Carbon Border Adjustment Mechanism (CBAM) as they navigate the evolving landscape of sustainable trade. Launched in October 2023, CBAM represents a new approach to combating carbon leakage. It functions by imposing a carbon price on specific imported goods with high carbon footprints, like cement, steel, and aluminum. While the transitional phase focuses on data collection and emission reporting, the mechanism paves the way for future financial penalties.

Understanding CBAM and Default Values

Importers are required to calculate and report the embedded emissions associated with their goods. To help ease this initial reporting burden, the EU introduced temporary "default values" for use in these calculations. These default values, introduced by the European Commission in December 2023, simplify the process of calculating the carbon footprint of imported goods during the initial phase of the EU Carbon Border Adjustment Mechanism (CBAM). However, these default values come with limitations and are only a temporary solution. They are set to be phased out by 2025, at which point a switch to the full EU methodology will be required.

What the Default Values Mean for Businesses

For businesses, these default values provide a streamlined approach to complying with CBAM regulations in the short term. They can be used to calculate the carbon footprint of specific goods with high embedded emissions, like steel and cement, thus levelling the carbon playing field between domestic and imported products. However, with the upcoming deadline for the first Carbon Border Adjustment Mechanism (CBAM) report, EU businesses need to prepare for the changes that lie ahead.

The Future of CBAM and Default Values

The full implementation of CBAM in 2026 is expected to involve the purchase of CBAM certificates based on the emissions footprint of imported goods. This initiative aims to incentivize cleaner production practices globally and promote a level playing field for both domestic and imported products. In the meantime, the European Commission has issued default values for calculating embedded emissions in imported goods until December 2025, with the exception of electricity. This is part of broader efforts to curb carbon leakage by setting a price on carbon in goods from non-EU countries to encourage cleaner production abroad.

Regulations and Compliance

From 2026, the regulations will intensify, requiring authorized CBAM declarants and the purchase of CBAM certificates. Germany has already taken steps in this direction, appointing its German Emissions Trading Authority as the competent CBAM authority. These steps are part of broader efforts to curb carbon leakage, promote sustainable trade, and mitigate climate change. The EU Emissions Trading System (ETS) plays a crucial role in these efforts, setting import regulations that encourage cleaner production and sustainable trade practices.

As the CBAM report deadline approaches, understanding the default values for CBAM and how to comply with these new import regulations is crucial for businesses. The transition to a more sustainable trade environment is not without its challenges, but with the right information and support, businesses can navigate these changes successfully.

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