Understanding Carbon Border Adjustment Mechanism (CBAM): A Legal Perspective on Implementation and Implications for Thai Business Operators

Home » Understanding Carbon Border Adjustment Mechanism (CBAM): A Legal Perspective on Implementation and Implications for Thai Business Operators

The Carbon Border Adjustment Mechanism (CBAM) is a crucial legislative measure within the European Union’s “Fit for 55” package, a comprehensive framework aimed at reducing the EU’s greenhouse gas (GHG) emissions by at least 55% by 2030 compared to 1990 levels. The measure is strategically designed to complement the existing European Union Emissions Trading System (EU ETS) by addressing potential carbon leakage resulting from the relocation of production bases to countries with fewer restrictions on GHG emissions. This article explores the key aspects of CBAM, its implementation timeline, and its implications for Thai business operators, emphasizing the importance of adapting to global environmental policies.

CBAM Overview and Scope

CBAM specifically targets imports of carbon-intensive products and covers six major types of goods: iron and steel, aluminium, fertilizer, cement, electricity, and hydrogen. Additionally, it extends its scope to include downstream goods such as knots and screws made from iron and cable wires made from aluminium.

Implementation Timeline

The CBAM implementation timeline is segmented into three periods:

1. Transitional Period (October 1, 2023 to December 31, 2025)

During this “learning phase,” relevant parties must prepare to collect and measure embedded emissions data for CBAM goods. While purchasing CBAM Certificates is not mandatory, importers or EU indirect customs representatives must report embedded emissions quarterly.

2. Definitive Period (January 1, 2026 to December 31, 2033)

Only authorised CBAM declarants can import goods into the EU. CBAM Certificates, reflecting imported goods and their embedded emissions, become mandatory. Reporting of embedded emissions must occur annually and be verified by an accredited verifier. The free allocation under EU ETS gradually phases out during this period.

3. Full Effective Period (from 2034 onward)

CBAM becomes fully effective, comprehensively covering embedded emissions of CBAM goods, with no free allocation under EU ETS for CBAM goods.

Several countries, including the US, Canada, the UK, and Australia, are contemplating similar legislative measures or policies. The timelines and product scopes of these measures may differ, necessitating vigilant monitoring by global business operators to mitigate risks associated with international environmental policies and regulations.

Preparing for CBAM: A Thai Perspective

Thai business operators exporting CBAM goods to the EU must navigate the transitional period by understanding CBAM requirements. Preparation involves obtaining information on embedded emissions, which is crucial for importers with reporting obligations. A lack of such data may lead to the use of default values, potentially increasing the required CBAM Certificates. In the definitive period, businesses should focus on adapting production processes for continuous emission reduction to align with the decreasing EU ETS-free allowance.

While Thailand’s overall exports to the EU may not be as significant as those to the US, China, or Japan, it is crucial to consider potential expansions of CBAM’s product scope. The EU regulators plan to align CBAM goods with EU ETS sectors by 2030, potentially impacting industries like petroleum, ceramics, glass, pulp, and paper.

Conclusion

CBAM represents a pivotal step in the EU’s efforts to combat climate change, demanding adaptability from businesses engaged in international trade. As Thailand and other nations navigate the intricacies of CBAM, a proactive approach in understanding, preparing for, and responding to these environmental measures will be critical for sustained global business operations. The significance of CBAM as part of a broader trend towards environmental responsibility underscores the importance for businesses to stay informed and agile in their response to evolving international environmental policies and regulations.

At Silk Legal, we can provide a range of services around company formation, necessary licenses for importing and exporting goods, and general regulatory guidance. This article is for information only, and while we have tried to keep our updates as accurate as possible, there may be errors and changes to proposed legislation that can affect your decisions. Please feel free to contact us for a free consultation at [email protected].

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