European carbon border tax: European businesses struggle with bureaucratic madness

The carbon import duty continues to raise many questions among businesses. Companies must already report the carbon footprint of imported goods this year.

The first-ever carbon import duty (the so-called CBAM) came into force on 1 October last year, and the first obligations are raising many questions, according to Euractiv. The system imposes charges on imports of a range of products, including cement, steel, aluminium and fertilisers. The charges are based on their carbon footprint. The aim is to protect European producers, which have to pay for their emissions while their competitors outside the EU often do not.

2024 is a trial year for CBAM. Importers do not yet have to pay the duty—they only have to report on imported products. The system will become fully operational in 2026. Business groups have already described CBAM as "bureaucratic madness".

CBAM sets 31 July as the deadline for reporting imports from 2023. However, it is not even clear which standard should be used to report emissions. ISO 14067 is currently the global standard for quantifying product emissions, but it will not be incorporated into CBAM reporting.

For example, the International Chamber of Commerce (ICC) set out its concerns to the Commission in an open letter, warning of "serious compliance problems" and bureaucracy, as companies have to report to 27 different national authorities. The ICC also points to technical problems with the registration platform.

EU member states reached a final agreement on the terms of the CBAM carbon duty in March 2022. The charge will apply to imports of iron, steel, aluminium, electricity, hydrogen, fertilisers and cement products. It will be based on the price of allowances in the EU ETS.

Initially, CBAM will cover only primary products. By the end of the year, the Commission is due to issue a report examining whether to extend CBAM to "downstream" products such as cars. These contain a high proportion of certain primary products that are already covered by CBAM.

According to the European Commission, some of the revenue from the carbon duty should be one of the sources used by the EU to repay its first joint loan, taken out to fund an emergency recovery programme. The Commission hopes to raise around one billion euros (CZK 24.7 billion) a year from the duty for this purpose.