An overview by Flick Gocke Schaumburg, Taxand Germany
The EU Commission has recently proposed reforms to the Carbon Border Adjustment Mechanism (CBAM) to reduce red tape and ease business burdens. Key changes include a new de minimis threshold exempting small businesses, simplified emission calculations, and more flexible declaration requirements.
The reforms aim to reduce administrative complexity while maintaining their environmental goals, such as combating carbon leakage and encouraging cleaner production outside the EU. Additionally, the mandatory CBAM certificate purchase deadline has been postponed from 2026 to 2027. However, challenges remain, with critics arguing the mechanism could still create trade barriers and discrimination against non-EU countries.
Rainlad Vobbe and Sebastian Moos from our German firm Flick Gocke Schaumburg have published a more detailed analysis of the proposed reforms below:
CBAM reform: less red tape, more efficiency?
The EU Commission’s planned reforms to the Carbon Border Adjustment Mechanism (CBAM) aim to cut red tape and ease the burden for businesses. New de minimis thresholds, simplified emission calculations and more flexible declaration obligations are intended to simplify the CBAM. However, it still remains a hot topic outside of the EU.
Having entered into force on 17 May 2023, the EU’s CBAM already faces reform proposals as part of the EU Commission’s Omnibus package. To cut red tape, the Commission is proposing various simplifications in the application of the CBAM Regulation.
Background
The CBAM is part of the EU Green Deal. In future, importers of carbon-intensive goods such as iron, steel, cement, aluminium, fertilisers and hydrogen from non-EU states will have to purchase a CBAM certificate for each tonne of emissions emitted during the production of the goods. The aims are to encourage cleaner industrial production outside the EU and to avoid carbon leakage to less regulated regions.
The first documentation and reporting obligations for affected companies came into force in autumn 2023 during the transition phase. In particular, quarterly reports must be submitted to the CBAM Transitional Registry of the EU Commission.
The mandatory purchase of CBAM certificates was originally planned for 1 January 2026. This is now expected to be pushed back to February 2027. The reason for this is the EU Commission’s Omnibus proposal package of 26 February 2025, which aims to both simplify and strengthen the CBAM.
The reforms proposed by the EU Commission essentially concern the following aspects:
New de minimis threshold to exempt smaller companies
In future, only importers that import more than 50 tonnes of emission-intensive goods into the EU per year will be affected by the CBAM rules. The EU Commission believes this will eliminate CBAM obligations for around 90% of importers (mostly small- and medium-sized enterprises), while still covering over 99% of emissions.
So far, only goods with a value of up to EUR 150 per consignment have been exempted from CBAM regulations. However, this is likely to be regularly exceeded. Therefore, the practical simplifications of the current regulation are likely to be limited.
Simpler calculation of grey emissions for certain goods
Grey emissions within the meaning of the CBAM are the direct and indirect emissions released during the production of goods, for example through the use of electricity that is not emission-free when generated. Affected enterprises can already rely on default values to determine grey emissions if no more precise data is available.
The EU Commission’s new proposals are intended to further simplify the use of these default values. For example, the applicable default values for exporting countries for which there is no suitable product-specific data will be adjusted to match those of the highest-emission countries for the respective product.
Furthermore, for iron and aluminium products only the emissions generated during the manufacture of the preliminary products will be considered. Emissions in connection with the finishing of such products will therefore be excluded under the proposals.
Declarants may claim carbon prices paid in third countries
Under Art. 9 of the CBAM Regulation, the declarant may claim a reduction in the number of CBAM certificates required in order to take into account the carbon price paid in the country of origin for the declared embedded emissions. However, after analysing data from the transitional period, the EU Commission acknowledged the difficulty of proving the carbon prices paid in third countries.
The Commission therefore proposes that the carbon prices paid in third countries should also be determined on the basis of default prices. This would be analogous to the procedure for determining grey emissions based on default values. In future, CBAM declarants will thus be able to refer to these default carbon prices in their claims for reduction if the actual carbon prices paid are unavailable.
The EU Commission has the task of determining these default prices.
Even if the Commission’s proposal aims to simplify the pricing process, enterprises must use detailed analyses of their supply chain to check the extent to which individual components have already been subject to carbon pricing.
Deadline extension and right of delegation for CBAM declarations
An annual overall report must be submitted in addition to the quarterly CBAM reports. The current deadline is 31 May of the following year, but the new proposals from the EU Commission would give enterprises until 31 August to meet their declaration obligations.
To enhance flexibility, importers will also have the option to delegate the submission of CBAM declarations to a third party. In addition to meeting certain technical requirements, the only conditions are that the third party has an EORI number and is based in an EU member state. The responsibility for the proper submission of the declaration remains with the company concerned.
Conclusion
The proposed simplifications are welcome. However, whether they will increase acceptance of the CBAM remains to be seen. The introduction of the CBAM regulations has been sharply criticised in some third countries.
Concerns have been expressed in the WTO that the CBAM could create barriers to trade and discriminate against certain countries; both because of the high reporting requirements and the fact that European manufacturers have received free emission certificates, which are only gradually being phased out.
With the CBAM, the EU is also trying to incentivise non-EU states to take the necessary steps towards a green transition. To maintain their trade relations with the EU, trading partners must restructure their production chains and set up appropriate carbon emission monitoring and certification schemes to properly comply with CBAM rules.
Rainald Vobbe (Flick Gocke Schaumburg (Bonn, Germany)) and Sebastian Moos (Flick Gocke Schaumburg (Duesseldorf, Germany)).