The Carbon Border Adjustment Mechanism (CBAM) entails – similarly to the system of allowances under the EU ETS – the surrendering of certificates (CBAM certificates) by importers, based on the embedded emission intensity of the products they import in the EU and purchased at a price corresponding to that of the EU ETS allowances at any given point in time.
These certificates will not be linked to the EU ETS system of allowances but will mirror the price of these allowances to ensure a coherent approach to the pricing under the EU ETS.
The CBAM certificates will have the following features, sometimes differing them from units under the EU ETS system (see the European Commission Proposal of 14 July 2021 for a Regulation of the European Parliament and of the Council establishing a carbon border adjustment mechanism (COM(2021) 564 final, 2021/0214 (COD)):
- Unique unit identification code - assigned upon creation evidencing unique unit identification number, the price and date of sale of the certificate (Article 20);
- Declarants' re-purchase right - the right of the authorised declarant to require the re-purchase of one third of total CBAM certificates purchased by the authorised declarant during the previous calendar year (for the price paid by the authorised declarant for that certificate at the time of purchase), the request to re-purchase must be submitted by 30 June of each year when CBAM certificates were surrendered (Article 23);
- CBAM certificates - contrary to the EU ETS allowances - cannot be traded between importers;
- Limited validity - by 30 June of each year, the competent authority of each Member State shall cancel any CBAM certificates that were purchased during the year before the previous calendar year and that remained in the accounts in the national registry of the declarants authorised in that Member State (Article 24);
- Surrender’s deadline 31 May of each year - by this date, the authorised declarant is required to surrender a number of CBAM certificates to the competent authority that corresponds to the embedded emissions declared and verified for the calendar year preceding the surrender (Article 22(1));
- 80% threshold at the end of each quarter - the authorised declarant is required to keep the number of CBAM certificates on its account in the national registry at the end of each quarter that corresponds to at least 80 per cent of the embedded emissions, in all goods it has imported since the beginning of the calendar year (Article 22(2));
- Price of CBAM certificates - calculated according to the specific rules (Article 21):
1. The European Commission shall calculate the price of CBAM certificates as the average price of the closing prices of EU ETS allowances on the common auction platform in accordance with the procedures laid down in Commission Regulation (EU) No 1031/201026 for each calendar week. For those calendar weeks in which there are no auctions scheduled on the common auction platform, the price of CBAM certificates shall be the average price of the closing prices of EU ETS allowances of the last week in which auctions on the common auction platform took place.
2. This average price shall be published by the Commission on its website on the first working day of the following calendar week and shall be applied from the following working day to the first working day of the following calendar week.
3. The Commission is empowered to adopt implementing acts to further define the methodology to calculate the average price of CBAM certificates and practical arrangements for the publication of the price.
4. Recital 21 of the draft Regulation reads: "In order to preserve its effectiveness as a carbon leakage measure, the CBAM needs to reflect closely the EU ETS price. While on the EU ETS market the price of allowances is determined through auctions, the price of CBAM certificates should reasonably reflect the price of such auctions through averages calculated on a weekly basis. Such weekly average prices reflect closely the price fluctuations of the EU ETS and allow a reasonable margin for importers to take advantage of the price changes of the EU ETS while at the same ensuring that the system remains manageable for the administrative authorities".
Data necessary to calculate the amount of CBAM certificates to be surrendered will have to be included in the customs declaration.
European Commission’s Impact Assessment documents (published as an integral part of the Fit for 55 package) read in this regard:
"As the CBAM based on import certificates would also be calculated at the point of import, customs authorities will need to collect and, depending on the roles given to either customs authorities and the CBAM Authority/national authorities, process the information related to the imported product.
Data necessary to calculate the amount of CBAM certificates to be surrendered would have to be included in the customs declaration and either certificates will be directly surrendered or added up for a final balance for a full calendar year.
While customs will always have an important role, the option of requiring a surrender or proof of surrender of the certificates at the time of import will have a significantly higher impact on customs costs".
It is noteworthy, on 15 March 2022 the Council agreed on the Carbon Border Adjustment Mechanism. Compared to the initial proposal by the European Commission, the Council opted for a greater centralisation of the CBAM governance, in particular, according to the Council, the new registry of CBAM declarants (importers) is to be centralised at EU level.
European Commission Proposal of 14 July 2021 for a Regulation of the European Parliament and of the Council establishing a carbon border adjustment mechanism, COM(2021) 564 final, 2021/0214 (COD)
Article 20
Sale of CBAM certificates
1. The competent authority of each Member State shall sell CBAM certificates to declarants authorised in that Member State at the price calculated in accordance with Article 21.
2. The competent authority shall ensure that each CBAM certificate is assigned a unique unit identification code upon its creation and shall register the unique unit identification number, the price and date of sale of the certificate in the national registry in the account of the authorised declarant purchasing it.
Article 21
Price of CBAM certificates
1. The Commission shall calculate the price of CBAM certificates as the average price of the closing prices of EU ETS allowances on the common auction platform in accordance with the procedures laid down in Commission Regulation (EU) No 1031/201026 for each calendar week. For those calendar weeks in which there are no auctions scheduled on the common auction platform, the price of CBAM certificates shall be the average price of the closing prices of EU ETS allowances of the last week in which auctions on the common auction platform took place.
2. This average price shall be published by the Commission on its website on the first working day of the following calendar week and shall be applied from the following working day to the first working day of the following calendar week.
3. The Commission is empowered to adopt implementing acts to further define the methodology to calculate the average price of CBAM certificates and practical arrangements for the publication of the price. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 29(2).
Article 22
Surrender of CBAM certificates
1. By 31 May of each year, the authorised declarant shall surrender a number of CBAM certificates to the competent authority that corresponds to the embedded emissions declared in accordance with Article 6(2)(c) and verified in accordance with Article 8 for the calendar year preceding the surrender
2. For the purposes of paragraph 1, the authorised declarant shall ensure that the required number of CBAM certificates is available on its account in the national registry. In addition, the authorised declarant shall ensure that the number of CBAM certificates on its account in the national registry at the end of each quarter corresponds to at least 80 per cent of the embedded emissions, determined by reference to default values in accordance with the methods set out in Annex III, in all goods it has imported since the beginning of the calendar year.
3. Where the competent authority finds that the number of CBAM certificates in the account of an authorised declarant is not in compliance with the obligations pursuant to paragraph 2, second sentence, that authority shall notify the adjustment and request that the authorised declarant surrenders the additional CBAM certificates within one month.
4. The recipient of the notification referred to in paragraph 3 may lodge an appeal of the notification. The recipient of the notification shall be provided with information regarding the procedure to be followed in the event of an appeal.
Article 23
Re-purchase of CBAM certificates
1. The competent authority of each Member State shall, on request by a declarant authorised in that Member State, re-purchase the excess of CBAM certificates remaining on the account of the declarant in the national registry after the certificates have been surrendered in accordance with Article 22. The request to re-purchase shall be submitted by 30 June of each year when CBAM certificates were surrendered.
2. The number of certificates subject to re-purchase as referred to in paragraph 1 shall be limited to one third of the total CBAM certificates purchased by the authorised declarant during the previous calendar year.
3. The re-purchase price for each CBAM certificate shall be the price paid by the authorised declarant for that certificate at the time of purchase.
Article 24
Cancellation of CBAM certificates
By 30 June of each year, the competent authority of each Member State shall cancel any CBAM certificates that were purchased during the year before the previous calendar year and that remained in the accounts in the national registry of the declarants authorised in that Member State.