Understanding CBAM – A Quick Overview For The Plastics Industry

The Cross Border Adjustment Mechanism (CBAM) has been proposed by the EU as a mechanism to stop what is known as ‘carbon leakage’. If countries import large numbers of goods, they may claim their overall carbon emissions have reduced, when in fact the carbon they would have produced by manufacturing and/or assembling the goods themselves has essentially been ‘exported’ to the country supplying them. CBAM is designed to make countries accountable for the carbon that is produced developing the goods that sustain their economies.

Does CBAM include plastic?

Currently, the scope of CBAM does not cover plastic or plastic products. But between 1 October 2023 and 31 December 2025, there will be a ‘transition period’ during which other products will be considered.

Once the transition period is over and a definitive list of products is settled upon, the aim is to implement CBAM from 1 January 2026. The EU Commission plans to extend the scope to cover all sectors subject to EU emissions trading by 2030.

This will apply to the EU but it is expected that the UK will follow with a similar system. At this point in time, no dates or timeline have been published for the UK equivalent.

What do we know will be covered by CBAM?

Ultimately, CBAM is intended to replace the current EU Emissions Trading System (EU ETS), which does not calculate emissions using a method that includes imported goods. The current EU ETS does not include finished products, nor does the UK equivalent (the UK ETS).

CBAM will apply to countries importing goods from non-EU countries (except a handful linked to the EU ETS, such as Iceland, Norway and Switzerland). The initial list of what is in scope for CBAM during the transition period is:

• Cement
• Electricity
• Fertilisers
• Aluminium
• Iron
• Steel
• Hydrogen

What does my company need to do to prepare for CBAM?

This depends on where your company is based, what they are importing and where they are importing it from, remembering that the list of in-scope items is likely to increase.

During the transition phase (1 October 2023 and 31 December 2025), EU companies importing in-scope items from non-EU countries are obliged to document and report both direct and indirect emissions that occurred from the production process of the imported goods. During this phase, however, there are no additional financial obligations.

These companies are then obliged to prepare a quarterly report covering the quantity of in-scope goods imported, the associated emissions and any carbon-related taxes that were paid in the country where the goods were produced.

What can companies expect after the CBAM transition period?

From 1 January 2025, companies operating within the EU will be able to apply to be registered as an importer of CBAM goods. After 1 January 2026, companies need to be registered if they intend to import goods that fall within the scope of CBAM.

Each EU member state is obliged to monitor the movement of goods between borders and to deny entry of CBAM goods destined to a company that has not declared itself an importer of such products.

Companies must determine direct and indirect emissions based on ‘default’ values (if importing electricity) or ‘actual’ values (for everything else). ‘Actual’ values will need to be verified by a certified testing body.

From 1 January 2026, importers must use this information to purchase enough emission allowances (CBAM certificates) to cover imported embedded emissions for that calendar year.

Each year, companies will be obliged to submit an annual declaration of relevant goods imported during the previous calendar year, with a deadline of 31 May. The amount of imported embedded emissions will be compared with the acquired emission allowances. The idea is that if not enough emission allowances have been purchased in relation to imported embedded emissions, there may be financial sanctions.

What is the British Plastics Federation (BPF) doing regarding CBAM?

We are attempting to keep our members informed as the situation develops. As mentioned, currently CBAM only applies to EU companies but the UK is expected to follow with a very similar system.

The BPF will continue to monitor the situation and inform its members of any UK government announcements and any significant developments within the EU system, especially those relating to in-scope products.

The BPF is also running a webinar covering expectations for the UK economy in 2024 as well as the impact of CBAM. Take a Look!

UK government information on CBAM: here