Border Carbon Tax adopted! From 1st October, a series of new obligations for entrepreneurs.

On 10^th May 2023, the Carbon Border Adjustment Mechanism (CBAM) Regulation was adopted. This means that as of 1^st October 2023, new quarterly reporting obligations await entrepreneurs related to the need to determine the level of emissions associated with the production and transportation of imported products listed in the Regulation, or to determine their origin. 

One of the priorities of the European Union’s policy is environmental protection activities, which are expected to have an impact on slowing down the progressive negative climate change caused by human activity. This is reflected in the “Fit for 55” package of legislative proposals prepared under the European Green Deal. One of the proposed pieces of legislation included in this package is the Regulation carbon border adjustment mechanism (hereinafter: the “CBAM Regulation”).

General principles

CBAM is an acronym for the phrase “Carbon Border Adjustment Mechanism.” In the Polish literature it is referred to as the Border Carbon Tax, which, through the CBAM Regulation, is to be implemented as a mechanism to limit harmful emissions of greenhouse gases (e.g. carbon dioxide). It is to limit the import of goods into the European Union from countries that do not apply the EU’s proposed measures to reduce them by imposing additional financial costs on importers of certain types of goods. The amount of such burden is to depend on the amount of greenhouse gas emissions generated during the production of the imported goods.

Subject matter and entity scope

According to the adopted content of the CBAM Regulation, in the first phase it will specifically cover imports of:

• cement (selected products from CN 2523),
• electricity (CN 2716 00 00),
• fertilizers (among others from CN chapters 2808, 2814, 2834, 3102, 3105 except CN 3105 60 00),
• iron and steel and related products (selected products from CN chapters 72 and 73),
• aluminum (selected products of CN Chapter 76),
• – hydrogen (CN 2804 10 000).

Therefore, the effects of this act will primarily affect importers from sectors using these products in both production and trade.

Obligations

A number of new administrative obligations will be imposed on the aforementioned importers, and ultimately costs will be passed on to them, calculated as a reflection of the negative effects of harmful greenhouse gas emissions attributed to a particular group of goods. 

The administrative obligations and the aforementioned costs will be implemented through, among other things, the need to:

• obtaining the status of an authorized notifier in a special procedure (an EU central register of authorized notifiers will be maintained);
• purchasing CBAM certificates (the price is to be the average closing price of allowances available on the created auction platform for each calendar week);
• submission of annual declarations on direct and indirect emissions;
• keeping records on introduced high-carbon commodities as specified in the CBAM Regulation.

Applicability of the regulations

Initially, the Regulation was to take effect on January 1 of this year, but its entry into force has been postponed and staggered.

The adopted Regulation distinguishes the following cut-off dates:

• 1^st October 2023 (beginning of the transition period) – introduction of the obligation to submit quarterly reports on imports of goods subject to the regime of the CBAM Regulation (until 31^st December 2025);
• 31^st December 2024 – start of application process for authorization of entities as authorized CBAM notifiers, registration of operators and installations in third countries, and start of operation of the CBAM registry;
• 1^st January 2026 – start of CBAM certificate sales, the need to calculate embedded emissions and the mandatory filing of the first tax return by 31^st May 2027 for 2026, and the start of the sanction period, i.e., the start of administrative penalties.

Administrative penalties

The CBAM Regulation introduces administrative sanctions for authorized notifiers and importers related to failure to surrender for redemption CBAM certificates in a number corresponding to embedded emissions associated with specific commodities corresponding to an increased excess emissions penalty under Article 16 of Directive 2003/87/EC of the European Parliament and of the Council of 13^th October 2003.

At the same time, in Poland, entities may additionally be subject to sanctions under national legislation, i.e. the Fiscal Penal Code.

Implementation of CBAM       

The adoption of the CBAM Regulation and its gradual expansion will have a very significant impact on many sectors of the economy, including, first and foremost, the manufacturing and commercial industries related to the goods listed therein, but also on the work of customs offices and agencies. Entrepreneurs should be aware that the full implementation of the CBAM Regulation will significantly transform supply chains and existing import practices.

Thus, as we indicated earlier, part of the regulation comes into force as early as October this year, which means that businesses should prepare for the implementation of these regulations now.

As a first step, we recommend taking the following steps:

1) Verifying the CN codes of imported goods and the countries from which they are imported;

2) Implementing the first internal procedures to meet the reporting obligations of the CBAM Regulation, along with assigning them to individual employees. 

The above steps are important because the quarterly reports, effective 1^st October 2023, will already entail a number of details, such as the level of emissions associated with the production and transportation of imported products, or the determination of their origin.