About 2,400 companies from Serbia exported goods covered by the Carbon Border Adjustment Mechanism (CBAM) to the European Union during the past year, with 1,400 of them doing so in the last quarter of 2023. These figures not only include manufacturers but also traders or users of these goods, as stated by the Chamber of Commerce and Industry of Serbia for Nova Ekonomija.
The Chamber of Commerce and Industry of Serbia does not have precise data on how many Serbian companies submitted reports to their EU partners for the first reporting period (fourth quarter of 2023) because CBAM is designed as a mechanism primarily for the exchange of data on embedded emissions between companies, exporters outside the EU, and importers based in the EU. Thus, at this point, there is no publicly available centralized national registry of CBAM obligors.
According to data from the Chamber of Commerce and Industry of Serbia (PKS), the majority of entities subject to Carbon Border Adjustment Mechanism (CBAM) obligations are in the aluminum, iron, and steel industries (preliminary estimates suggest over 95%). Due to resource shortages and levels of preparedness, a particular challenge will be faced by small and medium-sized enterprises in the metal sector, whether they directly place the final product on the EU market or their product is one link in the supply chain of a final product exported by another company.
Addressing the challenges posed by the new European regulation, PKS notes that everyday practice shows that even companies in the European Union, who are formal CBAM reporting declarants, are significantly uninformed about their obligations when importing goods subject to CBAM regulations.
“Many of our exporters have not received any notification from their EU customers that it is necessary to provide them with data on embedded direct and indirect emissions in the products they export for the fourth quarter of 2023, as well as the possible price already paid for embedded emissions in the country of origin,” states PKS.
To prevent potential “carbon leakage,” which is the risk of European manufacturers relocating their production to countries with lower (or no) carbon taxes, or freely importing competitive products from third countries into their domestic market, the EU adopted the Regulation on the Carbon Border Adjustment Mechanism (CBAM Regulation) in May of last year. This regulation came into effect in October of the same year.
The regulation includes specific requirements for operators of export installations and CBAM declarants importing these goods, outlining how the calculation of specific embedded emissions is conducted and specifying the contents of the report submitted by the CBAM declarant.
The initial scope of the Carbon Border Adjustment Mechanism (CBAM) covers the import of goods from six sectors with intensive emissions that are considered at a higher risk of “carbon leakage” into the customs territory of the EU. These sectors include electricity, iron and steel, cement, aluminum, fertilizers, and hydrogen.
Before the full implementation of this regulation, a transitional period has been established, which began on October 1, 2023, and will last until December 31, 2025.
During the transitional period, companies in the European Union importing goods from third countries in the covered sectors (iron/steel, aluminum, cement, artificial fertilizers, electricity, and hydrogen) are obligated to report specific embedded emissions (both direct and indirect) and the possible carbon price paid in the country of origin to the European Commission.
On the other hand, companies outside the EU, including those from Serbia, producing and exporting such goods to the EU, are obliged to monitor and calculate both direct and indirect emissions. They must inform their partners in the EU about these emissions during this transitional period.
During this transitional period, there is no obligation to make any financial adjustments, nor is there a requirement for the verification of reports by an accredited verifier.
The full implementation of the regulation will begin on January 1, 2026. With the full enforcement of the regulation, the verification of reports and the purchase of CBAM certificates will be necessary.
Although there is no official list of CBAM obligors in Serbia, the EU has a centralized CBAM transitional register where importers submit their reports to the European Commission.
“Considering the complexity of the task being implemented for the first time – exporters to the EU from around the world are sending reports to their partners in the EU for these seven industries, and these partners must deposit their reports within a short period. Therefore, it should not be surprising that the registry, precisely these days, when it is also the deadline for submitting the first reports, experienced technical problems,” stated the Chamber of Commerce and Industry of Serbia.
Regarding reporting deadlines, the Chamber of Commerce and Industry of Serbia emphasizes that the reporting period for operators of installations (manufacturers of goods) and importers is not the same. For operators of installations, i.e., manufacturers, the reporting period is 12 months to gather representative data reflecting the operation of the facilities on an annual basis.
“On the other hand, during the transitional period, for importers or CBAM declarants, the reporting period is quarterly. The first quarterly report covers the period from October to December 2023, and the deadline for submitting this report was January 31, 2024. Due to certain issues in the functioning of the transitional CBAM registry, the European Commission allowed an additional 30 days for CBAM declarants facing technical difficulties to submit their CBAM reports. When the full implementation of the regulation begins, reporting for CBAM declarants will also be on an annual basis,” according to the Chamber of Commerce and Industry of Serbia.
What should be included in the report that Serbian companies send to EU partners?
The report that Serbian companies send to their partners in the European Union should include the total amount of embedded emissions in the products being exported. This is calculated or measured per unit of product mass and then increased proportionally to the quantity of exported goods, as stated by the Chamber of Commerce and Industry of Serbia.
“It is important to emphasize that not only direct emissions generated through the production process are calculated or measured, but also indirect emissions emitted during the production of electrical energy used in the process or energy used for heating the production plant,” notes the Chamber of Commerce.
The Chamber of Commerce and Industry of Serbia points out that there is no methodology specifically prescribed for companies in Serbia regarding the reporting process.
“During the first year of implementation, companies will have a choice, until December 31, 2024, to report in one of three ways: 1. full reporting according to the EU methodology, 2. reporting based on equivalent national systems of third countries; 3. reporting based on default values,” notes the Chamber of Commerce.
On the other hand, from January 1, 2025, only the EU methodology will be accepted, and embedded emissions will be tracked using an approach based on either calculation or measurement. This approach involves continuous measurement of the concentration of relevant greenhouse gases.
Penal measures for importers who fail to report emissions
When it comes to potential penalty measures, as indicated by the Chamber of Commerce and Industry of Serbia (PKS), they are envisaged for the CBAM declarant – that is, the importer of goods into the EU.
“Namely, the CBAM declarant who fails to fulfill the obligation to report the total imported quantity of CBAM goods, actual total direct and indirect emissions embedded in the goods, and the carbon price paid in the country of production, may be fined amounts ranging from 10 to 50 euros per ton of unreported emissions,” states the PKS.
The PKS also emphasizes that the competent national body in the EU may decide to apply penalty measures when the CBAM declarant has not taken the necessary steps to comply with the obligation of submitting CBAM reports or when the CBAM report is inaccurate or incomplete. In such cases, the CBAM declarant has not taken the necessary steps to correct the report after the competent body initiated a correction procedure.
“However, even though the penalty measures formally apply to the CBAM declarant, it does not mean that they cannot, in a certain way, transfer that cost to their partner – the exporter from third countries, or reconsider their relationship with them in terms of future collaboration,” notes the Chamber of Commerce and Industry of Serbia (PKS).
Awareness of CBAM is higher than before, but training is still needed
The Chamber of Commerce and Industry of Serbia (PKS) assesses that the overall level of awareness regarding the entry into force of the CBAM Regulation and the obligations arising from it is significantly higher today than four months ago (when the regulation came into effect).
Since October, the Chamber of Commerce has organized a series of six specialized sectoral training sessions on CBAM, specifically targeting the aluminum, iron/steel, cement, and artificial fertilizers industries. The aim was to inform obligated companies about the obligation that came into effect on January 31 and the key elements and requirements of the regulation. Additionally, in response to industry demand, two additional sectoral training sessions on CBAM were organized in January.
“In addition to this, the Chamber of Commerce and Industry of Serbia organized training sessions on green economic transformation in 11 cities in Serbia during November and December. Entrepreneurs had the opportunity to gain additional insights into green business models and concepts, such as ESG, product life cycle, carbon footprint, as well as the greenhouse gas monitoring, reporting, and verification system, German supply chain law, and services of the EEN network,” stated the response from the Chamber of Commerce.
The Chamber of Commerce emphasizes the need to continue with training and informing entrepreneurs on the broadest possible platform. This includes basic requirements of the CBAM regulation concerning operators of installations and establishing a long-term decarbonization strategy within the organization. It also involves the structure and content of reports, the methodology for calculating embedded emissions, and the process of completing the recommended reporting form.
