EU CBAM - actual emissions data
As EU CBAM reporting progresses to actual emissions data, what should you do next?
By Mark Feldman and George Riddell
In our previous posts on what the EU’s Carbon Border Adjustment Mechanism (CBAM) means for UK companies exporting to the EU, we’ve looked firstly at five steps tax leaders should take to be ready for the new regime, and then at the strategic actions required around suppliers, contracts and data. In this third and final instalment, we examine the transition to completing CBAM reports using actual embedded emissions data, rather than default values – and we look forward to how companies can best prepare to manage their CBAM obligations over the long term.
Let’s start with some context. The EU’s CBAM is being introduced using a phased approach to make companies’ pathway to compliance smoother and easier. You can read more about the requirements here. Crucially, they include an obligation for EU importers in designated sectors to report the embedded carbon within their imports, including those from their suppliers based in the UK.
For the first two CBAM quarterly reporting deadlines – in January and April this year – the transitional arrangements allowed for the use of default values where actual embedded emissions data was unavailable. That is about to change. The quarterly report due by 31 July 2024 is the final one where default values are permitted for use without restriction – and actual emissions data will be required for CBAM reports from then on.
Challenges ahead
For imports of CBAM goods into the EU from 1 July 2024 onwards, businesses will need to collect and report actual data on the specific embedded emissions of those products. Where the goods have originated from the UK, EU importers will be pressing their UK suppliers to monitor, calculate and share that information.
Failure to comply with these requests will introduce a commercial risk of UK companies losing their supply contracts. But the reality is that getting hold of actual emissions data is often far from straightforward. Across many industries, we’re seeing a lot of businesses struggle to do this. While in many cases progress is being made, we expect EU-based businesses to face significant problems around obtaining the actual data they need.
Concern over the potential challenges facing EU importers has been deepened by recent research into CBAM awareness and readiness published by the Stuttgart Chamber of Commerce and Industry. The study found that 42% of German companies thought the official information provided on CBAM was of poor quality, while only 3% rated it as good. The most concerning finding of the study was that just 3% of the companies asked believed they would be able to receive actual emissions figures from their suppliers in the future.
The challenge of obtaining actual embedded emissions data for imports is exacerbated by the mandatory use of the EU’s emission calculation methodology. While producers may use alternative methods for calculating actual embedded emissions of products until 31 December 2024, beyond this date only the EU’s calculation methodology will be permitted. Producers must therefore ensure not only that they can provide the required actual embedded emissions data, but also that they have arrived at these figures using an acceptable monitoring methodology.
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Growing urgency
The message for UK companies looking to continue exporting to trading partners in the EU is clear. They must assess now whether they have the actual emissions data – including, where necessary, emissions data for the upstream supply chain – that their EU-based customers will require. If they don’t yet have that data, then they must act to get it through a far more detailed data collection process than currently implemented. With the requirement for reporting actual embedded emissions data looming in July, they need to do all of this as a matter of urgency.
You can read more about how to collect actual emissions data along your supply chain in our previous blog. However, securing the relevant information and providing it to your EU customers for inclusion in their fourth quarterly CBAM report is just the start. This is not a one-off requirement, but a continuing obligation. It demands the creation and ongoing management of a robust, repeatable data collection and reporting process – one that will have significant impacts on areas ranging from supply chain management to third-party contracts to internal controls.
Readying for further regulations – including UK CBAM
Looking ahead, a further factor to bear in mind is that the EU CBAM requirements will change again when the transitional phase ends on 31 December 2025. Beyond that, there will be a growing number of UK and EU regulations requiring businesses to collect detailed data across their supply chains. To handle these obligations efficiently and effectively, companies will need a consolidated data collection framework that can cover all of them at one at once, rather than having to collect the data separately for each individual regulation.
Among the new regulations coming down the track, one of the most significant will be the UK’s own CBAM regime, currently scheduled for launch in 2027. Unlike the EU’s CBAM, the UK version will not have a transitional phase. This makes it imperative for UK businesses to have the right processes in place to comply before the UK CBAM is implemented. The UK Government is currently running an open consultation on the design and implementation of UK CBAM – and we would urge all UK businesses affected by it to make submissions and ensure their voices are heard.
Next steps for businesses
Against this complex and evolving background, what steps should UK exporters to the EU be taking today? Here are six future-focused actions that we would urge you to consider, particularly with the upcoming UK CBAM on the horizon:
If your business is facing uncertainty around some of the issues addressed in this article, or CBAM in general, please contact Mark Feldman or George Riddell .
Energy transition and decarbonization strategist, environmental, law, and financial consultant, investigation journalist, environmental activist...
3moI am interested in who is crazy here. The persons in charge of managing CBAM from the EC explained at the start that it is CBAM is an accounting nature. More precisely, they GHG is calculate according to their parameters regardless of what the company does. The only difference will be if the country in which the company is located is in the EU ETS system of carbon tax payment, then the money from the EU can be returned to the country of origin by bookkeeping activities. No one asks the company about anything! 😎
Global Leader: Climate Change and Sustainability Services at EY
3moThe challenges many organisations face when understand the GHG emissions at a product level goes beyond data, too. Should I use a higher-order method? What does emissions estimation uncertainty mean (and why is mine over 100%?), what is the boundary for the product I’m assessing? It’s good advice to be prepared now, Mark