EU and UK CBAM Basics: Timing & Penalties

Carbon Border Adjustment Mechanism (CBAM) regulations have emerged as a critical tool in combating climate change by ensuring that carbon-intensive industries face equivalent carbon pricing regardless of their location. The European Union (EU) has been at the forefront of implementing CBAM, while the United Kingdom (UK) has also been developing its own approach following Brexit. In this article, we will delve into the similarities and differences between CBAM regulations in the UK and the EU, focusing on timing of implementation and associated penalties.

Implementation Schedules

The EU unveiled its proposal for CBAM in July 2021 as part of the European Green Deal, aiming to have it operational by 2023. This timeline involves a phased approach, starting with a monitoring period followed by a transitional phase before full implementation. The EU aims to align CBAM with its Emissions Trading System (ETS) and other climate policies to ensure coherence and effectiveness in reducing carbon emissions. [TM1]?

In contrast, the UK has been developing its own Carbon Emissions Tax (CET) as an alternative to CBAM. The UK government announced its intention to introduce CET in November 2020, with a proposed start date of April 2022. However, the implementation of CET has been subject to a series of delays, partly due to Brexit-related challenges and ongoing negotiations with the EU and other trading partners. As of the current date, the exact timeline for CET implementation remains uncertain, with companies awaiting further clarity from policymakers.

Penalties and Enforcement

Both the EU and the UK plan penalties for non-compliance with CBAM/CET regulations, although the specifics will differ. The EU proposes a gradual approach to penalties, starting with warnings and corrective measures before escalating to financial penalties for persistent offenders. This approach aims to provide incentives for compliance while ensuring that penalties act as a deterrent against carbon leakage and unfair competition.

Similarly, the UK government has outlined its intention to impose penalties on non-compliant entities under the CET framework. However, the exact nature and scale of penalties are yet to be finalized, pending further consultation with industry and possible political changes in UK leadership. Like the EU, the UK is likely to adopt a phased and careful approach to enforcement, balancing the need for compliance with the need to support industries in transitioning to a low-carbon economy.?

Challenges for Industry

Both the EU and the UK face challenges in implementing CBAM/CET, including the need to address concerns about competitiveness, trade implications, and administrative complexities. Furthermore, the success of CBAM/CET will depend on international cooperation and alignment with global climate goals to avoid trade tensions and ensure a level playing field for businesses worldwide.

The uncertainties outlined here can be a problem for global companies. It simply makes long range planning difficult. One way for individual companies to respond is by wisely choosing their software to manage carbon accounting. Look for solutions that track carbon at the product level as opposed to those that focus on a company level. This path ensures that companies are better prepared to respond to changing carbon regulations in Europe.

About the Author

Bob Caskey leads demand creation at Rumzer. Rumzer’s suite of SaaS modules and professional services makes product environmental compliance simple and affordable so that all manufacturers, regardless of size, can more easily contribute to a cleaner planet and a sustainable global economy.

Rumzer’s great team is on a big mission. To inquire about our product compliance software or to discuss how we can help your organization address your compliance challenges, please email [email protected].