Why did the European Commission announce the opportunity of delayed submissions?
On 29 January 2024, the European Commission (“EC”) granted an opportunity for importers to delay their first Carbon Border Adjustment Mechanism (“CBAM”) reporting (Q4 2023), which was supposed to be due on 31 January 2024. This announcement was made due to the technical problems with the CBAM Transitional Register. Starting on 1 February 2024, the “Request Delayed Submission” button will be available in the registry, allowing declarants to request a 30-day extension of the report submission.
As the declarants are affected by system errors, the EC confirmed that no penalties will be imposed on the declarants who failed to submit their first CBAM report due to technical difficulties. However, declarants should refrain from using this opportunity, and whoever is unaffected by the technical problems is recommended to comply with the deadlines, with the permission to amend and correct their first three CBAM reports until 31 July 2024. What are the lessons we can learn from this incident?
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Lesson 1 – The EC is balancing enforcing CBAM to prevent carbon leakages and encouraging importers to onboard the programme
The CBAM was introduced the EC in October 2023 to put a fair price on the carbon emitted during the production of carbon-intensive goods entering the European Union (EU) and to encourage cleaner industrial production in non-EU countries. Although the intention is good, importers need help to comply with the regulations given the short preparation period.
Learn more about CBAM
From 1 October 2023 to 31 December 2025, the transitional period only requires the importers to submit quarterly reports on the amount of carbon emissions embedded in their imports (direct and indirect emissions) without making any financial payments or adjustments. Many importers faced challenges in submitting their first report, not only because of the technical issues on the relevant registry but also because of the knowledge gap and tight budget. Luckily, the EC provides guidelines, report templates and Q&A to encourage importers to kickstart their CBAM reporting journey. Also, importers are allowed to use default values until 31 July 2024.
Whenever a new regulation is implemented, it is important to have enablers who can support the affected parties in accepting and following the new regulation. Enablers such as the government, institutions, associations, and knowledge experts must come in and provide resources to those in need.
Lesson 2 – Companies have a mindset shift to consider complying with CBAM reporting as a competitive advantage
People are generally reluctant to follow new regulations because it means increased workload, cost, and time needed to complete a task. However, when we talked to our CBAM reporting clients, we saw that those fast adapting to the new regulations gained the first mover advantage. Customers prefer them due to improved supply chain stability and a stronger brand reputation.
Although completing the CBAM reporting requires money, they see it as a long-term investment that will bring in more business opportunities, especially in today’s tough economic environment. They are willing to take time to research and hire the right consultant who can help them get things done right from the start.
Those still lagging will see the pressure coming when their customers question their compliance status with the CBAM reporting. From our years of experience in the consulting line, clients who are anxious and stressed often make the wrong decision, resulting in spending double the amount of money to fulfil the CBAM requirements. The companies have slowly realised that nothing is more important than getting the right consultants to help you achieve your goals.
Lesson 3 – Carbon reporting is delayed, but the carbon tax is not going away
Although the EC “relaxed” the first CBAM reporting but don’t be tricked into hoping that one day the EC will call off the implementation of carbon tax, which is one of the carbon pricing tools to reduce carbon emissions, starting January 2026. Companies just have to keep going and improve themselves in terms of understanding the carbon emissions and measuring, monitoring and reporting them in accordance with the stipulated requirements.
The next challenge to the importers is to reduce carbon emissions as much as possible before the CBAM permanent system starts, where importers must surrender the corresponding number of certificates each year. The price of the certificates will be calculated depending on the weekly average auction price of EU ETS allowances expressed in €/tonne of CO2 emitted. Now is the best time to start your decarbonisation journey to minimise the hike in operating costs.
Although we could see that carbon reporting and pricing are affecting us at the organisational level for now, who knows, one day, it will also affect each of us at the individual level. Hence, it is crucial to remember that every green action shall start from us as a person. Collectively, the individual green actions will shape the green culture of your organisation. With strong commitment from the management team, I believe the whole process will be accelerated and be more promising for the change to stay long.
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