The EU Carbon Border Adjustment Mechanism – The 2023 / 2025 Transitional Phase

  • Legal Development 09 November 2023 09 November 2023
  • UK & Europe

  • Energy Transition

In May this year, we wrote about the EU Carbon Border Adjustment Mechanism (CBAM) designed to help Europe achieve a reduction of carbon emissions in line with its European Green Deal strategy.

A few months later, on 17 August 2023, the European Commission adopted Regulation (EU) 223/1773  setting out the rules1  for the transitional phase of the EU CBAM (the “Implementing Regulation”). The rules for this period, intended to serve as a learning period for all concerned and to fine tune the methodology for the actual mechanism itself, entered into force on 1st October 2023 and run until 31 December 2025. 

The Commission published helpful guidance on the practical implementation of the new rules for EU importers and operators of installations producing CBAM goods outside the EU.

In this article, we provide a summary of key provisions from the Implementing Regulation that we hope will be useful for EU importers and non-EU operators. 

1. Reporting Obligations. During the transitional period, importers, customs representatives, and indirect customs representatives based in the EU (collectively “Reporting Declarants”2 ) are required to report detailed information on the embedded carbon in imported goods and whether any carbon price has already been paid on them in the country of origin.  We set out below what the reports must include.  

2. Transitional Period. The Implementing Regulation applies during the transitional period, from 1 October 2023 to 31 December 2025. Reporting Declarants should ensure they are compliant with the reporting requirements during this period. 

3. CBAM Reports. Chapter II Article 3 of the Implementing Regulation outlines the essential information that Reporting Declarants must provide regarding listed imported goods. This includes details like the quantity of imported goods, as well as the identification of goods by their CN code. 

Reporting declarants are also obliged to furnish information on embedded emissions in the country of origin, production installation data, production routes used, specific embedded direct emissions (expressed as CO2 per tonne), and other relevant reporting requirements depending on the nature of the goods. 

For example, for electricity, Reporting Declarants are also required to notify emission factors used for electricity, expressed as tonne CO2e per MWh, while for steel goods, the Reporting Declarants must also provide an identification number of the specific steel mill where a particular batch of raw materials was produced, where this is known. 

Declarants must also report specific embedded indirect emissions data, covering electricity consumption per tonne of goods produced, specifying whether the calculation is based on actual emissions or default values. 

The report must include the corresponding emissions factor of electricity consumed in production and the amount of specific embedded indirect emissions (expressed as CO2e per tonne) determined by converting attributed embedded indirect emissions of the production processes into indirect emissions specific of the goods. 

If the rules for determining embedded emissions data differ from the ones indicated in Annex III of the Implementing Regulation, Declarants must provide additional information and description on the methodology used to determine the embedded emissions.

There is an option to use an electronic template for the purposes of reporting, provided by the Commission on Reporting Declarants’ request, which should provide the content of the communication as specified in Sections 1 and 2 of Annex IV of the Implementation Regulation. By way of further information, we include a link to a detailed user manual for Declarants on how to utilise the CBAM Trader Portal, published by the EU Commission on 27 October 2023.

4. Calculating Embedded Emissions. The Implementing Regulation provides specific methods for calculating embedded emissions produced in an installation. However, by way of a derogation, until 31 December 2024, embedded emissions may be determined using one of the following monitoring and reporting methods, if they lead to similar coverage and accuracy of emissions data compared to the methods provided in the Implementing Regulation: 

  • a carbon pricing scheme where the installation is located, or
  • a compulsory emission monitoring scheme where the installation is located, or
  • an emission monitoring scheme at the installation which can include verification by an accredited verifier.

If the Reporting Declarant does not have all the information specified in the Implementing Regulation, the Implementing Regulation provides for a derogation until 31 July 2024 to use other methods for determining the emissions, including default values made available and published by the Commission for the transitional period.

Temporary flexibility to facilitate compliance during the transitional period for calculating embedded emissions will also be available in certain scenarios for non-EU third-country operators until the end of 2024.

Small operators in third countries, whose contributions to direct emissions do not exceed 20% or less of the total embedded emissions of the imported goods, should be granted derogation from the reporting obligations and estimated values may be reported for the production steps in installations. 

On 23 October 2023, the Commission published an excel-based template for operators to automatically calculate embedded emissions and communicate this data clearly to importers of goods. To access the template, follow this link.

5. Inward Processing. Reporting Declarants who engage in inward processing must submit CBAM Reports under Chapter II Article 6 of the Implementing Regulation, including the quantities of goods involved, their embedded emissions, the country of origin and the installations.

6. Carbon Price Information. Reporting Declarants must also report information regarding the carbon price payable in the country of origin for embedded emissions. This includes details about the type of carbon price, rebates, amounts payable and other relevant information.

7. Key deadlines. Reporting Declarants must submit their CBAM Reports to the CBAM Transitional Registry no later than one month after the end of each quarter. This is a critical deadline to adhere to. Under the Implementing Regulation during the transitional period the first reports are due by 31 January 2024 in respect of goods imported during the fourth quarter of 2023. 

8. Modification and Correction of CBAM Reports. Reporting Declarants will have the ability to modify or correct their CBAM reports, but this must be done within two months after the end of the relevant reporting quarter with a derogation available for the first two reporting periods when it will be possible to modify those reports until the submission deadline for the third CBAM report. The Implementing Regulation further provides that it will be possible to lodge a request to a competent authority to modify a CBAM Report within one year after the end of the relevant reporting quarter, but permission for late filing might be refused.

9. Compliance Monitoring. Reporting Declarants should be aware that the European Commission may check CBAM reports for compliance during the transitional period. It is crucial to maintain accurate records and ensure that reports are complete and correct. If they are not, the Commission will communicate its indicative assessment of an incomplete or incorrect report to the competent authority in the Member State where the Reporting Declarant is established. The consequences of making an incorrect report are set out below. 

10. Data Security. Reporting Declarants should take data security seriously, as they will be sharing sensitive information about their imports. They should ensure that any electronic systems used for reporting are secure and comply with data protection regulations.

11. Penalties for Non-Compliance. Reporting Declarants should be aware that penalties will be imposed in cases of non-compliance. This includes situations where the Reporting Declarant has not submitted a CBAM report or where the submitted report is incorrect or incomplete. A penalty amount will be calculated based on unreported emissions and will range between EUR 10 and EUR 50 per tonne of unreported emissions. Reporting Declarants should expect the penalty to increase over time in line with the European index of consumer prices. 

Reporting Declarants should be particularly cautious about frequent or severe non-compliance. Higher penalties may be applied if:

•    More than two consecutive incorrect or incomplete reports have been submitted, or
•    The failure to report continues for more than 6 months.

Reporting Declarants can mitigate their risk of penalties for not complying with CBAM Rules by ensuring accurate and timely reporting, cooperating with authorities, and taking measures to prevent future infringements.

To avoid penalties altogether, we recommend establishing robust internal processes for data collection, reporting, and compliance monitoring. Seeking expert advice for establishing or reviewing those processes can also be beneficial. 

Reporting Declarants should keep records of all their reporting activities, including any corrections made to CBAM reports. This documentation can serve as evidence of compliance efforts if questions arise at a later stage. Remember that compliance with reporting obligations is essential during the transitional period, and penalties for non-compliance can have financial implications for an organisation.

It is important, therefore, to take these obligations seriously and make every effort to fulfil them accurately and in a timely manner. 

[1]COMMISSION IMPLEMENTING REGULATION (EU) 223/1773 of 17.8.2023 laying down the rules for the application of Regulation (EU) 2023/956 of the European Parliament and of the Council as regards reporting obligations for the purposes of the carbon border adjustment mechanism during the transitional period - C_2023_5512_1_EN_ACT_part1_v6.pdf (

[2] As defined in Chapter I Article 2 of Regulation (EU) 223/1773


Additional authors:

Maksym Khitrykh

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