The Regulation 2023/956 of the European Parliament and of the Council of 10 May 2023 establishing a carbon border adjustment mechanism („CBAM”) entered into force in May 2023.

One of the European Union's environmental objectives is to significantly reduce emissions of carbon dioxide and other greenhouse gases. The target is a 55% reduction in carbon emissions compared to 1990 levels by 2030. One of the pillars of this is the EU Emissions Trading System (EU ETS), which has been in force since 2005. However, the ETS only covers activities within the EU, so products with significant carbon emissions are more expensive to produce inside the EU than outside, putting EU market players at a competitive disadvantage compared to third country producers.

This is the reason why the CBAM was created as part of the EU environmental package, extending the EU ETS to some of the high emission products imported from third countries. In the future, these products will be subject to payment obligation. In addition to this, the new rules will also be a significant administrative burden for the companies in question.

Hungary also stands for this mechanism to promote climate neutrality and reduce greenhouse gas emissions. In view of this, Act CV of 2023 on the carbon border adjustment mechanism of imported goods and its implementing regulation, Government Decree 602/2023 (XII.22.), were voted and both acts entered into force on 22 January 2024. The National Climate Protection Authority acts as CBAM authority in Hungary.

Affected businesses

Companies (mainly electricity, fertiliser-, chemical producers and traders, automotive and machinery companies, traders in iron, steel and aluminium raw materials) that import products covered by the CBAM are subject to reporting and later to payment obligations.

The reports are submitted by:

- the importer on his own behalf and in his own interest, or

- by an indirect customs representative on behalf of the importer.

Transition period

Between 1 October 2023 and 31 December 2025 transitional provisions will apply. During this period, there will be a reporting obligation to the European Commission but no payment obligation. Companies are required to report data on products covered by the CBAM, with the content and in the manner specified in the CBAM and in the EU legal standards implementing this regulation. The transitional period is intended to allow all parties involved (manufacturers, importers and authorities) to learn the obligations of the regulation, in particular with regards to the quantification of emissions.

Scope of products covered by the CBAM Regulation

The products covered by the CBAM Regulation are listed in Annex I to the CBAM. The products have been defined on the basis of the Combined Nomenclature (CN) codes, which are clearly identifiable.

They include imported products such as:

- cement clinker, white Portland cement, aluminous cement

- electrical energy,

- fertilisers (e.g. nitric acid, nitrates of potassiu; mineral or chemical fertilisers containing two or three of the fertilising elements nitrogen, phosphorus and potassium)

- iron and steel products (e.g. pipes, bolts, tanks, drums, cans, other iron and steel products)

- products made of aluminium (e.g. wire, sheet, foil, tubes, rods, container, tanks)

- chemicals (hydrogen).

The Regulation does not apply:

- if the goods originate in the following third countries or territories: the EFTA countries - Iceland, Liechtenstein, Norway, Switzerland - Büsingen, Ceuta, Heligoland, Livigno, Melilla,

- for consignments of an intrinsic value not exceeding the EUR 150 threshold and goods of the same value forming part of travellers' personal luggage,

- goods necessary for military activities.

Reporting obligations

The first reporting deadline is 31 January 2024. In this report, businesses have to provide information on goods imported in the fourth quarter of 2023.

In the future, for each quarter, the importer or the indirect customs representative are obligated to submit to the European Commission, no later than one month after the end of that quarter, a report (hereinafter referred to as the 'CBAM report') containing information on the goods imported during that quarter.

The CBAM and the Commission Implementing Regulation (EU) 2023/1773 allow companies to correct or amend their reports at a later stage. As a general rule, the reporting declarant may amend the submitted CBAM report up to two months after the end of the reporting quarter.

The exceptions of this rule are the reports submitted for the first two reporting periods, as the reporting declarant may amend them until the deadline for the third CBAM, i.e. 31 July 2024.

It is important to highlight that in case of missing, incorrect, or incomplete reporting declarants may face penalties (CBAM infringement penalty) during the transitional period.

The reporting process

Registration:

The importer and the indirect customs representative initiate the temporary registration of CBAM by submitting an application to the CBAM authority via e-Paper service.

An EU Login account must be created before making the temporary registration of CBAM.

As part of the registration application, the reporting declarant must declare that he acts as an importer or as an indirect customs representative when importing goods covered by the CBAM to Hungary after 1 October 2023.

The registration can be done electronically via the Client Gateway at this link.

The EU Login account can be created here.

Registration assistance material and the declaration samples are available here.

Reporting process:

The report to the European Commission can be uploaded to the register as follows:

It can be completed in CBAM's temporary register or by filling this EU form.

The CBAM report should contain the following data:

1. Data in connection with the imported products

1. The EORI number of the reporting declarant
2. The full name (person or company) of the declarant
3. CN code (Combined Nomenclature)
4. Product name
5. The two letter code of the country of origin
6. Imported quantity per customs procedure
7. The Customs Requested Procedure
8. The Customs Previous Procedure
9. Net mass, in Megawatt Hour in case of electricity, and on tonnes in case of other products
10. Supplementary units

2. Embedded emissions data  

The detailed information sheet is set out in Annex I to the CBAM Implementing Regulation.

Rules after the transitional period

From 1 January 2026, after the transitional period, only importers with the status of "authorised CBAM declarant" will be allowed to import CBAM goods. To obtain this status, registration is required prior to importing CBAM goods into the EU and is expected to be available from 1 January 2025.

Importers with this status are obliged to submit an annual CBAM declaration on the quantity of goods imported into the EU in the previous year and of the quantity of greenhouse gas emissions embedded in their imports. For every 1 tonne of carbon dioxide emissions embedded from the imported CBAM goods, they must purchase a CBAM certificate and the number must be included in the report. The first CBAM declaration for the calendar year 2026 must be submitted by 31 May 2027. CBAM certificates will be sold by the Member States to authorised CBAM declarants established in that Member State.