EU announces major CBAM simplifications: Reduced compliance burden for SMEs
On the 26th February, the EU Commission announced its ‘Omnibus’ package, confirming the simplifications to the Carbon Border Adjustment Mechanism (CBAM). The proposal document and supporting ‘Commission Staff Working Document’ (SWD) were released the following day, outlining amendments to CBAM Regulation 2023/956.
Baker Tilly Ireland have reviewed the key points of interest from the proposal document and provided analysis below.
These changes are in response to discussions on the existing scope of the CBAM and the administrative burden on small and medium enterprises (SMEs). The Commission expects that these simplifications will remove 91% of EU importers (est. 182,000 importers) from the main CBAM reporting requirements whilst maintaining access to 99% of the emissions data covering imports.
It is interesting to note that the EU expects the loss of revenues to only be €21 million for year 2030, which confirms the current level of compliance requirements for SME’s significantly outweighed the actual benefits to the climate change agenda.
We will review how these simplifications will affect the SME importer and any compliance obligations still required.
The new simplifications are set out into four categories:
Authorisation of declarants
Emission calculation
Reporting requirements
Financial liability
Key simplifications:
Exemption from CBAM
The proposal confirms an exemption for importers who import less than 50 tonnes of net mass of CBAM products (excluding electricity and hydrogen) per calendar year. The SWD confirms the Commission has acknowledged SME’s are particularly affected by the CBAM requirements, especially with obtaining supplier data, and has decided to introduce this deminimis to help address this issue. The SWD suggests that the cost savings to EU SME importers will be €831m per annum.
This will be welcome news for many SME importers who have had to submit CBAM reports as they occasionally receive in-scope goods.
The threshold has been calculated to account for 99% of the embedded emissions in imported goods. Annex VII of the proposal confirms that the threshold will be reviewed each July and, if the calculation deviates by more the 5 tonnes, the threshold will be amended.
Although many businesses will fall under the 50 tonnes threshold, they must still retain evidence of the mass of CBAM goods imported in the calendar year as there will still be a requirement for these importers to submit the total tonnage of imported CBAM goods in the previous calendar year via an annual CBAM declaration.
Removal of non-calcined clay
As the production of non-calcined clay is not an emissions intensive process, the Commission has removed these products, which fall under code 2507 00 80, from the CBAM.
CBAM Certificates Delay
The sale of CBAM certificates is being delayed to 1 February 2027, extending the transition period by 12 months. This relieves the pressure on importers as they will not be required to pay for 2026 emissions until 2027.
Expanded definition of ‘Importer’
The proposal includes an important addition to the scope of the ‘Importer’ definition which many impact EU businesses who use simplified Inward Processing. The amended definition includes “or a bill of discharge in accordance with Article 175(5) of Delegated Regulation (EU) 2015/2446”. For EU importers who use the simplified Inward Processing they must ensure they have assessed if the business is required to submit CBAM reports to the EU.
There is also further detail provided for the ‘Operator’ definition to include a parent company controlling an installation in a third country directly or through a subsidiary company.
Indirect Representative
Article 5 of the CBAM regulation clarifies the obligations for an Indirect Representative to apply to be an authorized CBAM declarant. It also adds the requirement to register where an importer exceeds the current (50T) threshold.
Extended reporting deadline
The requirement to provide annual CBAM declaration by 31 May each year has been amended to 31 August to allow importers additional time to collate the declaration.
Use of default emissions data
The SWD confirms that importers will be able to freely choose between default and actual embedded emissions. This will allow EU importers to assign default values on goods purchased from smaller overseas operators, whilst maintaining CBAM compliance.
In addition to the default data, the EU announced that it will also be removing the requirement to record emissions data on ‘final production steps’ as these do not create any material emissions. Only the precursor emissions would, if actual data is used, be applicable for reporting to the EU importer.
EU precursors
The SWD confirms that there is significant compliance burden on the supply chains, for no benefit, whereby raw materials are exported from the EU to the overseas operator which are used in production of finished goods sold to the EU. The importer will, where covered EU precursors are covered by the EU ETS, be able to attribute zero embedded emissions against those precursors on the CBAM report.
It is expected that this will significantly reduce the administrative burden on both the overseas operator and the EU importer as only a breakdown of the precursor weights will be required for the reporting process.
Conclusion
Overall, the evidence the EU Commission’s flexibility in amending legislation once sufficient data is in place to analyse potential administrative concerns and risks to the operation of the CBAM.
For SME Importers, the first challenge will be to confirm they meet the de minimis and therefore reducing the extent of their CBAM obligations to basic annual reporting. For larger businesses, the option to use default data, even for smaller overseas operators, could create efficiencies in monitoring and administering the CBAM and will be a welcome simplification.
We recommend that importers of CBAM commodities review the simplifications and start to assess how these can be implemented to reduce the administration and management of overseas suppliers. Engagement with overseas suppliers will be a key element of the process as we expect there to be discussions on supply of data and how default data can replace the need for complex calculations, which may have been very burdensome on the supply chain.
Get in touch
If you have any questions about how these CBAM changes impact your business or need guidance on compliance requirements, please contact Andrew Thurston from our UK office. Andrew can provide tailored advice to help navigate the evolving CBAM regulations.
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