In its Implementing Regulation of August 2023, the European Commission in certain cases allowed the reporting of emissions for the purpose of filing Carbon Border Adjustment Mechanism (CBAM) reports based on calculations using published default values. However, 31 July 2024 is the last day when reporting entities may use the default values for the calculation of their direct and indirect emissions.
The substantive condition for the possibility to use default values was the unavailability of data on the part of producers or suppliers. As regards the next CBAM reports for the third and fourth quarters of this year, however, default values will no longer be available for use - with an exception - and the actual values according to the EU methodology will have to be reported.
The default values greatly simplified the calculation of direct and indirect emissions contained in goods imported from third countries that fall into selected categories subject to CBAM. For complex goods, from 31 July until the end of the transition period, it will be possible to use default values for a maximum of 20% of the calculation of the total emissions involved. Complex goods are defined as goods whose production requires both direct inputs (typically materials - direct emissions) and indirect inputs (typically electricity consumption - indirect emissions). Where partial data on emissions relating to such goods will be unavailable, it will be possible to estimate a 20% portion of such emissions. However, no estimates can be used for simple goods whose production involves only direct inputs.
From our practice we see that the implementation processes for CBAM, or ESG policy, have not been fully completed, especially in large corporations. Obtaining data on imported goods from producers and suppliers is very problematic and, in some cases, even impossible. At the same time, changes to existing long-term contracts for the purchase of goods and the negotiation of new ones impose significant administrative costs on companies. In many cases, entities subject to the CBAM reporting may even lose their market position. From the sources available to us, we do not yet see any effort by the European Commission to extend the possibility to use default values.
If you are concerned about CBAM and need to set up internal mechanisms or calculate emissions, please do not hesitate to contact us.