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Businesses are bracing themselves for the impact of the world’s first carbon border tax, which will impose red tape that will cost millions for those importing into the EU as protectionist trade measures increase around the world.
The carbon border adjustment mechanism (CBAM), which enters a trial phase on October 1, will cost companies up to €27mn a year to administer, according to European Commission estimates laid out when the levy was first proposed.
But several companies and trade bodies have warned that the true cost is impossible to estimate given the extent of the paperwork required and changes to current contracts and procedures. Templates of reporting documents, seen by the Financial Times, include forms with 10 sections to fill in for each importer.
The levy is designed to even out the costs for European producers, which face increasingly steep charges for greenhouse gas emissions under the emissions trading system, with businesses importing into the bloc. It will cover iron, steel, cement, aluminium, fertiliser, hydrogen and electricity generation and enter into full force from 2026 after the trial phase.
The commission has argued the measure will encourage other countries to introduce carbon pricing measures. It is designed to put a value on the pollution that is behind global warming and to limit carbon emissions that are rising every year.
Commission president Ursula von der Leyen has also been pushing for a global carbon price at events such as the UN General Assembly this month.
But a study by The Conference Board, a corporate funded think-tank, published on Thursday warned the levy would create bottlenecks for importers given staffing constraints at customs authorities and a lack of expertise verifying carbon emissions, which must be reported quarterly.
CBAM “adds an ongoing burden on European businesses, creating additional expense for them, while non-EU exporters are going to have to invest significantly in their carbon reporting systems”, said Anuj Saush, of the TCB, who said about 1,000 EU importers would be affected.
Only 105 verifiers are in the EU, and six member states have none at all, TCB said. More than 80 per cent of the businesses it surveyed said prices would have to increase for customers as a result of the levy.
Under the scheme, many suppliers from countries outside the EU will have to record and report emissions resulting from their production processes for the first time by January 31, unless they want to resort to using default values for embedded emissions. The commission is due to publish these by the end of the year.
If importers miss the reporting requirements they will face penalties of up to €50 per tonne of carbon emissions during the trial phase. Once the levy enters into force from 2026, its cost will be based on the EU’s own carbon price, which is currently about €85 per tonne.
Adolfo Aiello, deputy director-general in climate and energy at Eurofer, the steel industry body, said these penalties were not high enough to prevent circumvention of the tax, which companies could do by importing materials such as iron and steel after they have been manufactured into consumer goods.
About 350 steel products are covered by the CBAM, the most of any sector, followed by aluminium with 58, according to industry executives.
An EU official said the bloc did not yet know how many businesses would need to report under the scheme, but stressed that verification would not begin until 2026.
Countries affected including China, India and Turkey have raised objections to the measure, with Beijing asking for talks at the World Trade Organization.
But the official said the measure was non-discriminatory and therefore WTO compliant. “CBAM will not harm the competitiveness of EU businesses,” they added.