The first trial application for the EU Carbon Border Adjustment Mechanism (CBAM) is due at the end of February 2024. According to the Financial Times, the European Commission provided statistics on the first application. The number of reports of carbon-intensive products from China is far more than twice that of other countries. Taiwan is also among the top 5, slightly surpassing India. Why?
CBAM has been on trial in October 2023, and the first carbon data was originally scheduled to be due in January 2024. Later, the EU said that it was delayed by 30 days due to technical problems and was completed at the end of last month. However, since it was the first time to declare, it was also found that there were problems such as difficulty in logging into the system and a generally low declaration completion rate. Subsequent adjustments by the CBAM enforcement agency were yet to be made.
CBAM is on the road, and EU importers have made their first declarations with products in the fourth quarter of 2023. According to the declaration information obtained by the Financial Times from the European Commission, the number of carbon-intensive products from Taiwan ranks among the top five, slightly surpassing India and the EU. Of the total 13,000 reports submitted by local manufacturers, more than 5,000 entries showed that they were from Taiwan.
Unsurprisingly, China ranks first in exports of high-carbon-intensive products, with about 25,000 exports; closely followed by the United States, with about 10,000 exports, more than half less than China; followed by the United Kingdom, Turkey, Taiwan and India, all The number of declarations ranges from 5,000 to 10,000; the number of declarations from South Korea and Japan is far less than 5,000.
If we look at the six major industries managed by CBAM and the export output value of each country to the EU, China also ranks first, followed by Turkey, Switzerland, the United Kingdom, the Soviet Union, India and South Korea. Huang Lijia, managing director of KPMG, said in an interview: " Taiwan is not low in the first place, ranking eighth in the world in terms of export output value. Therefore, CBAM initially revealed the declaration volume, and Taiwan ranked fifth, which was not surprising to him.
Based on this ranking, Huang Lijia deduced that Taiwan ranks fifth: first, because the value of Taiwan’s exports to the EU is not low; second, Taiwan’s largest export product to the EU is steel downstream products - screws and nut parts. Taiwan’s manufacturers of screws and nuts are all small and medium-sized enterprises, so the number of manufacturers is relatively large; third, in response to the CBAM trial, the Ministry of Economic Affairs invited the Industrial Research Institute and others to hold a number of briefing sessions last year, which worked. "I am more daring to fill in the application form," Huang Lijia said, adding that Taiwanese companies are more cautious and will submit information before the end of February as scheduled.
The first-time filing completion rate is low, with completion rates in Germany and Sweden only around 10%.
However, according to data provided to the Financial Times by the German Emissions Trading Agency, a total of about 20,000 manufacturers in Germany have to declare, and the first-time declaration completion rate is less than 10%. Other EU member states also have low declaration completion rates. For example, the Swedish Environmental Protection Agency mentioned that the completion rate is only about 11%.
The German Federal Environment Agency (UBA) stated that during the CBAM pilot period, the number of reports expected to be received should be much higher than this. UBA believes that the main reason for the low first-time declaration rate is that most domestic importers are still unclear about their declaration obligations. After all, CBAM is still in the so-called "transition period" and payment will not officially start until 2026.
Although CBAM has not officially launched the levy, importers of the seven major items managed by CBAM will still face a fine of up to 50 euros per ton of carbon emissions if they fail to complete their declaration obligations before mid-July 2024.
The CBAM trial first public declaration rate is only 10%. Huang Lijia bluntly said, "This number is not very good to be honest." However, he is still cautiously optimistic. Since the trial period lasts for two years and the declaration frequency is as high as once a quarter, there are still many local importers. Opportunities for operational learning, and CBAM enforcement agencies holding more briefing sessions and coaching importers to understand the reporting process, will help improve the overall learning curve.
From the perspective of the exporting country, he pointed out another observation: the professional differences between importers and exporters. As the data uploaders of CBAM regulations, local importers in the EU are good at commercial activities such as trade imports and assisting with customs declarations; exporters, as manufacturers, know best how to manufacture their own products and calculate carbon footprints and other technical issues. Both parties must Completing the declaration collaboratively still requires more instructions, coaching, and time. In addition, those who fail to complete their reporting obligations will face penalties, Huang Lijia said optimistically: "The reporting completion rate is expected to increase even more in the future."
CBAM undeclared black number is difficult to estimate
Citi analysts warned that the EU imports a large number of products from Russia, Turkey, India, and China, and it is expected that the input costs of cement and lime, fertilizers, steel, and aluminum will increase in the future.
Preliminary statistics based on nearly 13,000 reports received for the first declaration show that the largest number of carbon-intensive products in the EU come from China, and far more than the United States, the United Kingdom, Turkey and other other countries. This is why China has long criticized CBAM’s declaration requirements, and current data points directly to the fact that carbon leakage is concentrated in China.
However, during the first CBAM filing period, not only did technical problems arise such as difficulty in logging into the system, but it was also difficult to assess the number of reports that should be received each quarter.
A senior EU official told the Financial Times that the European Commission only mentioned that the import transaction volume in 2021 will be nearly 240,000. Nowadays, manufacturers are required to declare every quarter. Based on the rough estimate of annual transaction volume the year before, it is still difficult to extrapolate back to the number of manufacturers that should declare each quarter.
In view of the fact that there are still many problems to be solved before CBAM is launched, the European Commission has not yet addressed the issue of "undeclared" black numbers. It only stated that the system operation will be simplified to make it easier for manufacturers who need to log in to get started.
EU officials believe: "We must ask the right questions so that our understanding of the declared data will be more accurate."
Source: CSRWorld
