Three CBAM regulations in EU public consultations
The EU Carbon Border Adjustment Mechanism (CBAM) is a tool of the EU's climate policy, which is in line with the objectives of the European Green Deal and the Fit for 55 package. One of the pillars of the EU's climate strategy is the reform of the EU Emissions Trading System (EU ETS) and the introduction of CBAM, which complements the EU ETS, preventing so-called "carbon leakage" outside the EU.
CBAM was established by Regulation (EU) 2023/956 of May 2023 and entered into force on October 1, 2023. During a transitional period that lasts until the end of 2025, importers of selected groups of goods covered by the mechanism are required to report quarterly the quantities of imported goods and the embedded emissions associated with their production. The full, operational system (the so-called target period) will be launched in less than four months – on January 1, 2026. At that time, a fee for emissions embedded in imported goods will apply.
Public consultations on new CBAM regulations
As the transition phase nears its end and the CBAM is fully operational, the European Commission is conducting public consultations on three key draft implementing acts for the CBAM. These drafts clarify the mechanism's operating principles in the target period and are intended to ensure its effectiveness and compliance with the principle of equal treatment. These consultations are part of the EU legislative process – the Commission makes the draft regulations available on the "Have Your Say” portal gathering feedback from businesses, industries, and other stakeholders before finalizing the regulations. Below, we discuss three areas covered by the consultation.
Methodology for calculating embedded emissions
The first act under consultation concerns the methodology for calculating embedded emissions from goods covered by CBAM. During the transitional period, the reporting methodology was defined in an implementing regulation from August 2023, providing some flexibility (including the ability to use default values until mid-2024 and different emission measurement methods) – this served to gather data and "learn" the mechanism. The Commission is now proposing a target methodology for the years from 2026 onwards, ensuring that the calculation of embedded emissions is as precise as possible and comparable to the EU ETS rules.
As a rule, embedded emissions from imports will be determined based on actual data from installations producing the given commodity, in accordance with the monitoring and reporting method used in the EU ETS for similar sectors. The calculation methods are based on proven techniques known from the EU ETS.
The new methodology is intended to simplify and speed up emission calculations.
It should be noted that the European Commission is striving to reduce the excessive administrative burden of CBAM. Therefore, the use of default emission values will once again be possible during CBAM target period. It should be noted that the default values will significantly overestimate the actual emission values that may have been achieved in the countries producing CBAM goods. The goal of this measure is to motivate producers to measure actual emissions. If importers do not receive these values, they will be charged a higher cost for acquiring CBAM certificates.
CBAM correction rules and free allowances in the EU ETS
The second area of consultation concerns the mechanism for adjusting the CBAM fee in connection with the continued issuance of free ETS allowances to EU producers. This is a key element in ensuring that CBAM is WTO-compliant – importers cannot be burdened more heavily than EU producers.
Currently, many producers in energy-intensive sectors covered by the ETS receive some emission allowances for free (to prevent carbon leakage). With the introduction of CBAM, it was agreed that these free allowances would be phased out between 2026 and 2034. In practice, this means that CBAM will be phased in exactly the same way as free allowances are phased out.
Recognition of emissions fees paid in third countries
The third issue under consultation is the rules for deducting, within the CBAM framework, emissions costs already incurred by the producer in the country of origin. According to the CBAM framework, if a producer outside the EU has paid a CO₂ emission fee in their country (e.g., under a local emissions trading system), the importer can deduct this amount from CBAM due. This is intended to prevent double charging for the same emissions and encourage third countries to introduce their own pricing mechanisms for reducing emissions. During the transition period, importers are already reporting in their reports whether and how much carbon price was paid abroad and whether compensation mechanisms exist there. However, from 2026 onward, the procedure for recognizing such foreign fees must be precisely regulated.
The draft implementing act under consultation will specify which types of climate fees in third countries will entitle importers to a reduction in the CBAM fee, how importers should document this, and how the deduction will be made. It is likely that proof of payment of the carbon fee (e.g., a certificate of allowance surrender in a foreign ETS system or a receipt for payment of the emissions tax) and verification of this data will be required.
Technical issues are also being discussed during the consultations, including: exchange rates and settlement periods (because foreign fees may be paid in currencies other than the CBAM and annual systems other than the CBAM), taking into account rebates or reductions (e.g., when the national ETS system distributes some allowances for free or reimburses fees to exporters – to avoid a situation where the importer deducts something that was reimbursed to the producer). It is worth emphasizing that the recognition of foreign emission costs is also a key element for the WTO – the CBAM must ensure that non-EU goods are not treated less favourably than EU goods. Therefore, the draft emphasizes the principle of "no less favourable" treatment”: the importer can benefit from a deduction of any coal price actually incurred to avoid double charging.
How to prepare for CBAM during the target period?
New regulations related to CBAM significantly impact the legal and tax environment for business operations. For many companies – particularly importers of raw materials and materials, as well as exporters from energy-intensive sectors – this requires a thorough analysis of the CBAM's impact on their business and the implementation of appropriate procedures. It is worth emphasizing that these preparations must begin in advance. Experts point out that meeting CBAM obligations requires immediate action, including a review of data on imported goods, their embedded emissions, and potential carbon prices paid abroad.
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