The European Union’s Carbon Border Adjustment Mechanism (CBAM) will be coming into force this week on the 31st of January 2024. The new regulations will require importers of specific goods to disclose the carbon emissions embedded within their supply chains. These regulations, enacted on 1st October 2023, mandate that EU importers submit quarterly data on carbon emissions from third-party countries, including the UK.
To ensure compliance and competitiveness within the EU market, UK suppliers are urged to disclose emissions data to their European counterparts. The CBAM regulations cover a wide range of imports such as aluminium, cement, electricity, fertilisers, hydrogen, cast iron, and steel. Although there is a transition period until 2026, affected UK businesses must prepare by implementing robust mechanisms to accurately capture, report, and submit intricate carbon emission data to their European customers.
Initially, there will be no immediate financial impact, but carbon charges will gradually increase from 2.5% to 100% by 2034. Failure to comply with CBAM may result in fines ranging from €10 to €50 per tonne of CO2. Suppliers must be prepared to provide the required data to avoid potential penalties.
Crowe, a national audit, tax, advisory, and risk firm, has developed a five-step guide to assist affected parties in complying with CBAM regulations. The steps include understanding obligations under CBAM, performing an impact assessment, developing a cross-functional team, calculating embedded emissions, and preparing for reporting.
Ian Worth, Director of VAT and Customs Duty services at Crowe, emphasised the importance of UK businesses proactively addressing their CBAM reporting responsibilities. His statement elucidated on the matter:
“The impact of CBAM is beginning to reverberate across the global supply chain, including close trading partners such as the UK and will continue to do so as the scheme expands. However, while its effectiveness and implications for businesses remains to be seen, we’re urging UK business not to ‘shy away’ from their reporting responsibilities, especially if they wish to remain competitive against other third country suppliers in the same position.
“While CBAM is additional level of regulation, there is a silver lining. EU CBAM represents an opportunity for UK businesses to develop accurate reporting processes, and importantly invest in decarbonising production to minimise carbon emissions, ahead of the introduction of the UK’s own scheme in 2027.”
The CBAM regulations bring significant implications for UK suppliers, who must ensure compliance and adapt to the reporting requirements. By embracing these new obligations, businesses can contribute to a more sustainable future and maintain their position in the EU market.
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