The EU’s CBAM

One step closer to becoming a reality

In the last two weeks, the EU Parliament and the Council of the EU have adopted the EU’s Carbon Border Adjustment Mechanism (CBAM). As a final formality, both bodies need to sign the proposals, after which they will enter into force 20 days after being published in the EU’s Official Journal, all of which is expected to be done within the next few months.

The CBAM introduces a future EU importation levy on the embedded carbon emissions of certain goods. Initially, it covers a number of products in specific carbon intensive sectors (such as iron and steel, cement, fertilisers, aluminium, electricity and hydrogen, some precursors and a limited number of downstream products) but this list is in a state of constant change. The CBAM is aimed at preventing carbon leakage by EU-based companies that relocate their production outside the EU to avoid the EU’s climate regulation costs. It will however impact all importers of such products from anywhere in the world.

The levying of import charges will only commence in 2026 and it will be introduced gradually over a period of 9 years. At that time, any EU importer subject to the CBAM may get credit for any equivalent charges already paid in their downstream supply chain (for example, any carbon levies introduced in Singapore by that time, such as those identified in PwC Singapore’s 2023 Budget Proposals).

However, administrative reporting requirements will start from 1 October 2023. Hence, Singapore exporters would do well to immediately get their heads around these two questions:

Are the products I ship to the EU captured by CBAM?
The answer to this question is dependent on the customs tariff classification of your product under the EU’s Combined Nomenclature (CN). Reviewing and / or determining the CN code of your products is thus a first essential step.
If (some of) the products I ship to the EU are captured by CBAM, what do I need to report come 1 October 2023? How do I report it, and to whom?
Importers of the products in scope will have to report their embedded GHG emissions of CO2 and, where relevant, nitrous oxide and perfluorocarbons.

More details on CBAM and related measures can be found here.

Beyond immediate CBAM compliance requirements, you may also want to consider reviewing your supply chain to:

Assess compliance with emerging labour requirements (such as those in the US and Germany)
Evaluate the potential use of Free Trade Agreements
Enhance end-to-end supply chain visibility with optimal use of data through TradExchange
Explore all available trade facilitation options

How we can help

PwC has broad and deep knowledge and experience in helping our clients optimise their supply chains, including tariff classification code determination and identifying the carbon embedded in supply chains relating to your business. We can help you develop a step by step approach to the challenges ahead and create opportunities out of those challenges.

To discuss any of the above in more detail, please reach out to the below PwC Partners, or get in touch with your regular PwC contact.