October 1 is just two weeks away. Indian exporters were initially relieved as they only had to share emission data with the EU during the transition phase (October 1, 2023-December 31, 2025) without paying taxes. However, recently introduced EU rules, announced last month, have made the scheme more complex, even for the transition period.
The “CBAM Implementing Regulation for the transitional phase and its Annexes” specifies the details of information required. The rules place significant data compliance requirements on Indian firms exporting steel and aluminium products to EU countries and also prescribe penalties.
The EU CBAM legal and guidance documentation exceeds 800 pages of dense legal/technical texts. All Indian firms exporting products covered under CBAM to the EU will need to master every detail contained in these documents. Any neglect or misreporting will attract a penalty on the EU-based importer, who will promptly recover it from the Indian exporter.
Indian firms crib about complexity of GST forms. Compared to CBAM, the GST documents look elementary in complexity and details.
The Emission reporting process
The CBAM transitional period starts on October 1, 2023, and finishes at the end of 2025. Indian exporters will share specified emission data with the EU-based declarants during this period. Declarants will submit CBAM reports online to CBAM Transitional Registry set by the EU. The declarants will either be the importer of goods based in the EU or the indirect customs representative.
The CBAM report will contain information as prescribed in Annex I of Implementing Regulation. The report is to be submitted every quarter one month after the end of that quarter. October-December 2023 is the first quarter. So first report will have to be submitted by January 31, 2024.
The declarant can modify the submitted CBAM reports within two months of the end of the reporting quarter. For October-December 2023 quarter, the report may be corrected by the same declarant by February 29, 2024.
Indian exporters should ideally share the required emission data for October-December 2023 quarter with their EU counterpart importers/declarants by the end of the first/second week of January 2024. This will enable the declarant to submit the CBAM report to the online registry by January 31, 2024.
The EU will consider a CBAM report incomplete if data does not meet the requirements set by Annex I of Implementing Regulation. The EU will view the information as inaccurate if the submitted data needs to be corrected or fails to meet the requirements in Articles 3 to 7 and Annex III of implementing Regulation.
The EU member country will assess the data extracted from CBAM Transitional Registry. It may initiate the correction procedure for incomplete or incorrect CBAM reports or failure to submit a CBAM report. It may seek additional information from the declarant. Or proceed to levy a penalty.
The Regulation prescribes stiff penalties for non-submission or incorrect or incomplete submission of data, and hence Indian firms must master the detail of data sharing with the EU. The penalty will be between €10 and €50 per tonne of unreported emissions. It will be calculated based on the default values published by the Commission for the transitional period. Higher penalties shall be applied when more than two incomplete or incorrect reports have been submitted in a row or the duration of the failure to report exceeds six months.
Here is a four-step guide to developing a firm’s emission reporting obligations. Indian exporters must refer to the Implementing Regulation for the CBAM transitional period and its detailed annexes for data requirements at each stage.
The following steps will ensure that all critical data needed for reporting emissions is covered.
Step 1: Define the installation’s production processes and routes for each good. This is needed to attribute emissions to specific goods produced.
Step 2: Identify the direct and indirect emissions of the installation. Direct emissions are emissions from the production processes, including from the production of heating and cooling consumed during the production processes, irrespective of the location of the heating and cooling output. Indirect emissions occur during the production of the electricity an installation consumes for its production processes, regardless of whether this electricity was produced within the installation or bought from outside.
Step 3: Get the following information for each of the goods: Goods Commodity code; description of goods; export quantity, total direct and indirect emissions; the emission factor used for electricity; sector-specific information as prescribed; and information on the data quality and methods used.
Step 4: Firms must use an Excel file developed by the European Commission for reporting emissions. The Excel file allows the calculation of CBAM-embedded emissions, identifies data required by the reporting declarants to complete the CBAM report, provides guidance on the different measures performed and provides a summary sheet containing primary information on production processes and products to be communicated to the reporting declarant for their CBAM Reports. It ensures that every data point is noticed.
Action for govt, industry
The government must establish a dedicated task force with representatives from relevant ministries to guide small firms in preparing CBAM documentation. Failure by industry in proper data sharing will result in penalties and loss of exports for the country.
Industry to ensure accurate reporting. Foster open communication with EU-based importers to ensure a smooth exchange of emissions data and reporting information. Ensure timely submission of CBAM reports to the EU importer, who has to submit these to CBAM Transitional Registry.
Companies must invest in robust data collection systems to accurately track emissions throughout their production processes.
The CBAM transitional period, lasting until the end of 2025, necessitates timely and accurate submission of CBAM reports, with penalties in place for non-compliance or inaccurate reporting. By taking proactive steps to understand and comply with CBAM requirements, Indian firms can safeguard their exports.
The writer is the founder, Global Trade Research Initiative