What is a border carbon tax?

The Carbon Border Adjustment Mechanism (CBAM) plays a crucial role in preventing carbon leakage for business and industry. It ensures that greenhouse gas emissions associated with imports of foreign goods are accounted for fairly. The aim is to prevent the transfer of production to regions with less stringent environmental standards (relocation), thereby ensuring European competitiveness.

The Border Carbon Adjustment Mechanism marks a significant change in the European Union's environmental policy. The EU ETS (EU Emissions Trading Scheme) focused primarily on regulating emissions from certain installations within the European Union through the allocation of allowances. It is fully in line with actions to combat global warming. However, the CBAM extends its scope to include emissions and products associated with the import of goods via certificates on EU companies. The two mechanisms thus share the common aim of pricing CO2 emissions from the same sectors and goods.

Objectives of the Border Carbon Tax Mechanism

Why was this system set up? The objectives are twofold:

Preventing carbon leakage

Progressive replacement of the ETS (recitals 19 to 31)

The Border Carbon Adjustment Mechanism (BCAM) plays a crucial role in preventing carbon leakage for all companies. It ensures that the greenhouse gas emissions associated with imports of foreign goods are taken into account fairly, thus preventing the transfer of production to regions with less stringent environmental standards (relocation). It should be noted that since 2005, European companies have been obliged by law to purchase carbon credits or allowances to offset their emissions.

The MACF marks a significant development in the European Union's environmental policy. In fact, it makes it possible to combat all those European companies that are in the habit of relocating part of their production outside the EU for reasons of price. This is currently the case in China and certain American countries, where the price of carbon is lower than in France and Europe. Price distortion with non-European competitors is increasing. The price between European and non-European products could therefore become increasingly important. While the ETS focused primarily on regulating emissions from certain installations within the EU via the allocation of allowances, the MACF broadens its scope to include emissions associated with the import of goods via certificates. These two mechanisms thus share a common objective of pricing CO2 emissions from the same sectors and goods. Indeed, re-establishing price competition encourages companies to produce on European soil.

Note that companies and sectors where competition is fierce will continue to benefit from free quotas until 2034.

Let's not forget another aspect, that of reinforcing climate action: the carbon tax mechanism at borders is part of the plan to combat global warming.

Scope of CBAM and products concerned

Companies must declare everything they import from abroad. The trial phase began on October 1, 2023.

The following imported goods are subject to MACF:

• Electricity (e.g. electrical energy)
• Cement (e.g. Portland cement, aluminous cement)
• Fertilizers (e.g. nitric acid, anhydrous ammonia, mineral fertilizers)
• Cast iron, iron and steel (e.g. iron or steel tubes, welded sections)
• Aluminum (e.g. aluminum bars, aluminum sheets, aluminum tanks)
• Chemical substances (e.g. hydrogen)

Imported processed products made from these goods are also subject to CBAM.

However, the following are excluded:

• Imported goods of negligible value, in accordance with certain specified values;
• Goods contained in the personal baggage of travellers from third countries, as long as they remain below the specified values;
• Goods for military use.

Manufacturers are dreading this administrative headache during the trial phase. Declaring imports and carbon emissions is not that simple, and competitiveness is likely to be much more important.

To date, the regulations exclude the following countries and territories from the MACF:

• Iceland
• Liechtenstein
• Norway
• Switzerland
• Büsingen
• Helgoland
• Livigno
• Ceuta
• Melilla

MACF calendar : What are the next key dates?

From October1, 2023 to December 31, 2025	During this transitional period, declarations or "blank declarations" will be simplified. Importers are mainly required to provide information on imported goods(MACF Report).
January1, 2026	Effective entry into force of the regulation: goods imported during this year must be declared under MACF
May 31, 2027	First full MACF declaration

What are the key obligations of the MACF transition period?

Focus on the transition period

MACF report presentation

Every EU importer or indirect customs representative for non-EU customers who has imported goods must submit a MACF report to the Commission in the month following the end of each quarter from October 1, 2023. Ex: At the end of January 2024, FISCALEAD must submit a MACF report for the months of October to December 2023.

MACF report content

The MACF report must contain the following information: -The quantity of goods imported, -Actual intrinsic emissions, -Indirect emissions, -The price of carbon due in the country of origin.

Sanctions

The Commission notifies the DGEC (for France) of an operator's failure to comply with the reporting obligation. In the event of an incomplete MACF report, the Commission may request additional information from the DGEC.

Obligations for manufacturers

What types of data are required and expected ?

CBAM regulation require for operators and/or the CBAM declarant to provide :

• During the transition period: A quarterly report and no financial contribution is due in regards of CBAM ;
• At the end of the transition period: An annual declaration due on May 31 N+1 as from the period starting in January 2026.

These two periods, which call for different obligations, need to be anticipated and prepared, and we would be delighted to help you. Failure to comply with CBAM requirements is, of course, punishable by law.

What are the penalties under CBAM regulations?

Fine for failure to surrender CBAM certificates :

Authorized MACF registrants must surrender MACF certificates corresponding to the intrinsic emissions of imported goods by May 31st of each year. Failure to do so will result in a fine, in accordance with the directive applicable to excess emissions. Each MACF certificate not surrendered is subject to a fine.

Fine for introducing goods without complying with obligations

Any person other than an authorized MACF declarant who introduces goods into the territory of the Union without complying with the obligations of the regulation is liable to a fine. This fine may be three to five times the amount of the fine imposed on the authorized MACF declarant for failure to surrender MACF certificates. /!\ A fine does not dispense from the obligation to surrender the CBAM certificates required for the year in question.

Collection :

In the event of non-payment of the fine on the due date, the competent authority may recover the fine by any means provided for by the national law of the Member State concerned.

Finally, how can FISCALEAD help you meet your CBAM obligations?

FISCALEAD is at your disposal for any questions you may have:

• Act as a registered customs representative under indirect representation on your behalf, and file the required MACF declarations on your behalf and/or ;
• Prepare and check CBAM declarations on your behalf, for filing by your customs representative OR by you, the operator in your own name.

If you have any questions or need support, don't hesitate to contact us!