After the Paris Agreement, where the European Union has committed to developing actions that limit the global average temperature to 1.5°C above pre-industrial levels, signed the European Green Deal that, as a goal, sets out some strategies to transform the European Union into a prosperous and carbon-neutral society by 2050, including the Carbon Border Adjustment Mechanism (CBAM), instrument to prevent carbon leakage and promote global decarbonization.
How the mechanism works, called CBAM Declaration will focus on:
- Products like: aluminum, ferro, steel, cement, fertilizers, electricity and hydrogen.
- Processed products: Goods resulting from the inward or outward processing regime.
- Imported goods: Products imported into the customs territory of the European Union
The Carbon Border Adjustment Mechanism (CBAM) will have a transitional period of 1 of october 2023 a 31 december 2025. From 2026, full CBAM certificate return obligations will apply, with the first CBAM declaration to be submitted by 31 from May of 2027.
The Ecological Pact
The European Green Deal is a strategic initiative of the European Union (EU) which aims to transform the bloc's economy to achieve climate neutrality by 2050. This pact was launched by the European Commission in December 2019 and includes a range of measures and policies to address climate change and environmental degradation.
Main Objectives:
- Climate Neutrality until 2050: Make the EU the first climate-neutral continent.
- Emissions Reduction: Reduce net greenhouse gas emissions by at least 55% until 2030, compared to the levels of 1990.
- Circular Economy: Promote the circular economy, where resources are reused and recycled.
- Clean Energy: Transition to renewable and efficient energy sources.
- Initiatives and Measures:
- REPowerEU: Plan to reduce dependence on fossil fuels and accelerate the energy transition.
- Industrial Plan of the Ecological Pact: Supporting the innovation and competitiveness of European industry.
- climate action: Policies to mitigate climate risks and protect people’s prosperity and health
Requirements, CBAM concepts and definitions
Let's explore some concepts and definitions that impact the products listed above, since any exports to the European Union, are already in the transition period and will have to be included by the end of 2025, When does this period end?.
Any products with/and raw materials: aluminum, ferro, steel, cement, fertilizers and hydrogen, in addition to its transformations and also the source of electrical energy involved in its manufacture, will have to be considered in the generation of GHG, and the Carbon Border Adjustment Mechanism (CBAM) enter this equation to try at the same time, equalize the conditions that legislation imposes on European companies to companies located in other parts of the world, that is, a compensation mechanism, which also prevents companies from moving their production to other countries that are not under European jurisdiction.
The CBAM Certificate, which details GHG emissions and allows European importers to import less or more merchandise, depending on the quantity purchased, will use the emission data of companies that want to export to Europe from all over the planet. These certificates have an expiration date and can be purchased and even resold in the Union depending on the importer's interest..
Below we will detail some definitions related to the products, GHG emissions and CBAM Certificates, beyond the concept of product activity level:
- Emissions Check: Declared emissions must be verified by a person accredited by a national accreditation body.
- CBAM Certificates: They differ from CELE emission licenses and will have prices published weekly to better reflect market trends.
- Flexibility for Declarants: CBAM certificates will be valid for a limited period and may be resold if purchased in excess.
- Integration of Third Countries: The integration of third countries into the Union's electricity market is crucial to accelerate the transition to renewable energy and reduce CO2 emissions.
- Incompatibility with Climate Objectives: Third countries that take measures contrary to the European Union's decarbonization objectives may be excluded from the Union's market coupling.
- Authorizations and Declarations: Importers must apply for authorization to import goods and submit annual CBAM declarations detailing embodied emissions and required CBAM certificates.
- Accounts in the CBAM registry: Each authorized CBAM declarant receives a unique account number and access to their account in the CBAM registry. The account is closed if the declarant ceases activity or has authorization revoked.
- Authorization: To obtain authorized CBAM declarant status, the applicant must meet specific criteria, how to not have serious infractions and demonstrate financial and operational capacity.
- Sale of CBAM certificates: Certificates are sold on a common central platform and assigned a unique identification number. The price is calculated based on the average closing price of CELE emission licenses.
- Return of CBAM certificates: Until 31 May of each year, declarants must return CBAM certificates corresponding to the emissions incorporated in the previous year.
- Export Assessment: The report must assess the evolution of Union exports in the CBAM sectors and the trade flows and emissions incorporated into the world market.
- Risk of Carbon Leakage: If there is a risk of carbon leakage for goods exported to countries without carbon pricing mechanisms, the Commission may propose legislation to mitigate this risk.
- Biennial Reports: The Commission must report to the European Parliament and the Council on the application of the regulation and the functioning of the CBAM, including economic and territorial impacts, inflation, international trade, and evasion practices.
To calculate embodied emissions in complex commodities, It is necessary to follow some specific steps:
- Identification of Direct and Indirect Emissions: First, it is necessary to identify all sources of direct emissions (produced at the manufacturing site) and indirect (resulting from the production of inputs and energy used).
- Data Collection: Collect data on energy consumption, raw materials and other inputs used in the production of the complex commodity.
- Application of Emission Factors: Multiply the collected data by the corresponding emission factors. Emission factors are values that indicate the amount of CO2 emitted per unit of energy or material consumption.
- Calculation of Total Emissions: Add all direct and indirect emissions to obtain the total emissions embodied in the complex commodity.
- Using Default Values: When real data is not available, predefined values can be used to estimate emissions.
These steps ensure that all emissions associated with the production of complex commodities are accounted for accurately and transparently..
Attributed emissions are calculated by adding the direct and indirect emissions resulting from the production process.
Commodity activity level refers to the quantity of production or volume of goods produced. It is a measure that helps calculate the specific embodied emissions, as it allows total emissions to be related to the quantity of goods produced. This ensures that emissions are allocated proportionally to production.
The relationship between emissions and production is fundamental to understanding the environmental impact of manufacturing goods. In simple terms, the greater the production, the greater the amount of emissions generated tends to be, unless more efficient and sustainable technologies or production practices are implemented.
This relationship is expressed through the calculation of specific emissions incorporated, which are the total emissions divided by the activity level of the goods (quantity produced). This allows you to assess the efficiency and sustainability of the production process, comparing emissions generated per unit of product.
biO3consultoria will soon bring to the Brazilian market a tool, leader in the European market, which will help Brazilian exporters to comply with the standard and make their CBAM Certificates available to European importers interested in the products that make up the raw materials mentioned in this article.
Find out more on our Blog HERE.
Access official information HERE.