Cbamboo Webinar Slides - 10th April 2024

Update on CBAM across the EU and UK

Two new regulations facing the aluminium industry

Aluminium Federation, 10 April 2024

A presentation by

In partnership with

Cbamboo

Founded Cbamboo in May 2023

Previously worked in investment management and financial journalism

Cbamboo

Startup with 100% focus on CBAM

We build compliance and data tools

Pilot version launched January 2024

Gabriel Rozenberg CEO, Cbamboo

Today’s webinar

1. Recap on CBAM systems

2. UK CBAM consultation

3. Update on EU CBAM: lessons from the first six months

4. How we can help with your compliance needs

Today’s webinar

1. Recap on CBAM systems

2. UK CBAM consultation

3. Update on EU CBAM: lessons from the first six months

4. How we can help with your compliance needs

Europe’s biggest ever carbon law

A revolution in trade and supply chains

A hugely complicated tax

EU producers today get free allowances against ETS

Cbamboo

The EU is phasing these out – creating a risk of ‘carbon leakage’

Cbamboo

CBAM levels the playing field on carbon prices

And it’s a model for carbon price regimes everywhere

Overview of the CBAM process

Non-EU Manufacturer / Distributor

Assess production process and relevant calculation methods.

Monitor emissions

Attribute emissions to production processes and then goods

Collect data on precursor emissions and add these to your own emissions

Determine the scope of goods covered by CBAM

Identify all the parameters you need to report on

EU Reporting Declarant

Contact your suppliers and request CBAM data

Goods in scope:

– Iron & steel

– Aluminium

– Cement

– Fertilisers

– Electricity

– Hydrogen

Report on the specific embedded emissions of your CBAM goods

Share the CBAM emissions report with EU customer, for all installations & goods

Receive CBAM data from suppliers

Collect data on carbon price due in third country

Create CBAM reports and file with National Authority

Definitive period

Jan 2026: purchase CBAM certificates in proportion to embedded CO2e

Scope of EU CBAM – Aluminium industry

Aluminium

Aggregated Goods

Categories

CN Code / HS Heading

Aggregated Goods Category

Cbamboo

7601

7603-7608, 7609, 7610, 7611, 7612, 7613, 7614, 7616

Unwrought aluminium

Aluminium products

Today’s webinar

1. Recap on CBAM systems

2. UK CBAM consultation

3. Update on EU CBAM: lessons from the first six months

4. How we can help with your compliance needs

UK CBAM: first consultation is followed by radio silence

Treasury plans a UK CBAM in 2026

MARCH 2023

But deadlines are missed…

…as divergent prices store up trouble for UK plc

“The changes proposed by the UK government are the furthest reaching carbon leakage measure proposed by any country to date. … will go beyond the EU’s own proposed measures” – Redshaw Advisors

NOVEMBER

Source: Redshaw Advisors

December 2023: UK Government announces scope of UK CBAM System will start on 1 Jan 2027 – out of sync with EU

21 March: Second consultation published

Cbamboo

A UK CBAM doesn’t reduce bureaucracy… it duplicates it

EU CBAM

Producers must account for carbon emitted

UK CBAM

Importers must declare

UK CBAM

Producers must account for carbon emitted

EU CBAM

Importers must declare

Summary of differences between UK and EU CBAM

Scope of goods

Aluminium, Iron and Steel, Fertilisers, Cement, Hydrogen and Electricity

Aluminium, Cement, Ceramics, Glass, Iron and Steel, Fertilisers, Hydrogen

De minimis rule

Goods with a value lower than €150 per consignment are exempt

Companies whose value of CBAM goods imports over a 12-month rolling period are less than £10,000 are exempt.

Report cadence Transitional period report are quarterly, then yearly Initial reports will be yearly, then quarterly

Use of default values

100% for the first three CBAM reports, after that only up to 20%. In definitive period, can be used without limitation.

Can be used without limitations

Tax payment

Purchase of EU CBAM certificates in proportion to tCO₂e. Certificates price weekly.

Quarterly payment of tax direct to HMRC in line with CBAM rates. Rates priced on quarterly basis

Scope of aluminium products is in line with EU

Scope: UK CBAM includes both direct and indirect emissions

Significant divergence vs EU

Good news! UK aluminium gets credit for using low-carbon electricity

De minimis: The UK CBAM sets a higher threshold before a set of trades are liable for CBAM

Consignments containing CBAM goods worth less than €150 are exempt.

Companies are exempt reporting if the value of their CBAM imports over a rolling 12-month period is lower than £10,000

The UK estimates this rule excludes 60% of companies that import CBAM goods, while covering 95% of imported emissions.

EU CBAM

UK CBAM

Reporting schedules will be a headache

EU CBAM

Producers must account for carbon emitted ANNUAL

UK CBAM

Importers must declare ANNUAL, THEN QUARTERLY

UK CBAM

Producers must account for carbon emitted ANNUAL (?)

EU CBAM

Importers must declare QUARTERLY, THEN ANNUAL

Problem: UK importers get no rebate for higher EU carbon rates

Source: Redshaw Advisors

At present, UK carbon prices are around 40% cheaper than EU carbon prices. The UK CBAM liability can be reduced based by the amount of carbon prices paid overseas. But it can not go below £0.

Importers of EU goods into the UK will effectively pay for the price difference between the two sets of prices. This will make EU products more expensive compared to goods produced in the UK or sourced from outside the EU.

And note the oddity – the vast majority of UK CBAM declarations will result in charges of… £0!

Default values based on global averages – a controversial move

The UK’s use of average global values, rather than punitive default values, means that some goods will pay less CBAM that what they really should. This removes incentives to some producers to provide actual emissions data.

The report seems uncertain, and perhaps conflicted, about whether default values should in fact be punitive

Tax rate: UK CBAM calculation is simpler, at cost of flexibility

The rate is based on the UK ETS price, and is set to the average of the previous quarter’s prices. In contrast, EU CBAM tracks the weekly EU ETS price.

UK ETS price 2022-23

Q3: ~£88

Source: Statista with data from Ember

Q4: ~£75

Under UK CBAM, imported goods will be paying a fixed CBAM rate over the whole quarter. In this example, imports in Q4 will pay the tax rate from Q3.

UK producers have the flexibility to trade UKAs and take advantage of price fluctuations.

But that won’t be the case for UK-based importers facing CBAM charges.

Open question: does this undermines the level playing field under WTO?

Ongoing uncertainty over Northern Ireland

Other questions we have over UK CBAM

● Northern Ireland issue:

○ How do we check the date on which a CBAM good comes into the UK where there are no customs controls?

● De minimis issue:

○ The volume of emissions embodied in goods are proportional to their weight, not their value. Why is the criterion for de minimis based on value and not weight?

But will UK CBAM actually happen?

Today’s webinar

1. Recap on CBAM systems

2. UK CBAM consultation

3. Update on EU CBAM: lessons from the first six months

4. How we can help with your compliance needs

Recap on EU CBAM for aluminium sector

Scope

❖ Aluminium producers must report on both direct and indirect embedded emissions in the Transitional Period.

❖ But the CBAM charge will only apply to direct emissions

❖ Commission hopes to include indirect emissions “as soon as possible”

Aluminium scrap

❖ No CBAM charge applies to scrap

❖ However, installation operators must measure the tonnes of scrap used and the percentage that is pre-consumer scrap

Timeline

❖ Full data on supplier emissions is mandatory from July 2024

❖ Limited data from suppliers (ie location of installations) will be required from the first report

Thresholds and fines

❖ The threshold for CBAM declarations is just €150

❖ Fines are €10-€50 per tCO2e of unreported emissions

Technical issues force two extensions

● Deadline for first report: 31 Jan

● Technical errors hit the new CBAM

Transitional Registry

Widespread failure to report

“ … fewer than 10 per cent of 20,000 companies in Germany expected to report emissions did so by an early deadline this year, according to data collected by Germany’s emissions trading authority and shared with the Financial Times. The figure was echoed by other national authorities. Sweden’s Environmental Protection Agency said that 11 per cent of expected reports had been filed.”

– Financial Times, 1 March 2024

Default values are being widely used – but not for much longer!

● We see importers using default values for their CBAM reports

● From 3Q24, they MUST use real data – from their supply chain

● Despite some pushback from European industry, the Commission is sticking to the plan

CBAM increases transparency: needs to be handled with care

● Example: A UK distributor of buys goods from Asia and re-sells to UK and EU firms. CBAM requires full transparency of the supply chain

● Exact approach EU will take remains to be seen

● But the trend is towards greater transparency around supply chains and carbon emissions

● Critical for suppliers to send precisely the required data to their customers

Cbamboo

CBAM

UK Distributor

Poor understanding of supplier information requirements

● Manufacturers already use a range of carbon accounting standardsGHG Protocol, ISO

● None of these are compliant with the CBAM methodology

● They do, however, offer a starting point!

ISO 14064

ISO 14025

CBAM uses Direct and Indirect Emissions, not

Scope 1 and Scope 2

Cbamboo

Missing: precursor data

Missing: additional parameters (eg %age scrap)

Missing: carbon price payable

Data redacted and altered vs original to preserve anonymity

Today’s webinar

1. Recap on CBAM systems

2. UK CBAM consultation

3. Update on EU CBAM: lessons from the first six months

4. How we can help with your compliance needs

To calculate and send data to importers, you can use the EU’s Excel template

(Other user-friendly systems are also available…)

Cbamboo

The system of companies emailing Excel sheets is not working well

Precursor manufacturers and stockholders

Final CBAM good

EU Single Market border

Excel / PDF CBAM Emissions report

Cbamboo

Transitional Registry

Indirect representation

As friction builds up, the system fails to deliver

Our solution: a network where each supplier has a page

Cbamboo data platform

EU Single Market border

Declarant

Working with customs agent

Cbamboo

Cbamboo Calculate

June 2024

Cbamboo Share

Cbamboo

For UK & global suppliers:

❖ A guided process for creating compliant emissions reports

❖ Tracking CBAM data for each installation and product

❖ Integrate precursor data

❖ Secure peer-to-peer sharing

❖ Seamless updating of reports

❖ Verification and audit tools

Cbamboo Declare

For EU Declarants:

❖ Automate CBAM reporting on imports

❖ Compile customs and supplier data to create EU-ready XML

❖ Review data and flag unrealistic emissions numbers

❖ Analytics and insights into supply chain carbon emissions

Gabriel Rozenberg CEO, Cbamboo