The Carbon Border Adjustment Mechanism (CBAM) is a carbon border tariff introduced by the European Union beginning Oct 2023. It will initially tax imports of products in the six most carbon-intensive sectors: aluminum, iron/steel, cement, electricity, hydrogen, and fertilizers on their embedded carbon content.
It is critically important that companies remain in-line with CBAM’s reporting guidelines for numerous reasons, extending beyond corporate transparency. First and foremost, failure to correctly report emissions accurately can incur a fine from the National Competent Authority of €10 to 50 per tonne of unreported emissions. Misreporting less than 1% of total emissions could result in fines amounting to several million euros per year for many of Europe’s medium and large companies.
If emissions associated with imported products and materials are unreported or misreported, the fifth-percentile default numbers will be applied potentially impacting the reputation of that company among consumers and investors.
Thirdly, noncomplying companies are at risk of having their CBAM licenses withdrawn, disallowing the importing of CBAM goods entirely.
Due to the novelty of the regulation and the stringency of its reporting requirements, penalties will not be applied liberally for the initial reporting periods. This increased flexibility will no longer be allowed for the 2024 Q3 reporting period.
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