Exactly what does the CBAM entail?
If companies import products (e.g. steel, iron, cement, aluminium, electricity, fertilisers and other industrial products) into the EU that generate high CO2 emissions, the CBAM requires them to pay a CO2 levy on the emissions released during their production. These companies then pass on the 'climate costs' of their products in their prices. This makes it easier for European producers to compete with companies from countries with less stringent climate rules.
To which companies does the CBAM apply?
Assess whether the CBAM applies to your company. If it is applicable, you may have to adjust your internal processes to meet the CBAM obligations. For example, start with the collection and reporting of data about the CO2 emissions of the products you import. Meeting these obligations on time means that you will avoid any legal or financial consequences in the future.
When did the CBAM enter into application?
- The CBAM entered into application back on 1 October 2023. Its consequences are being introduced in phases.
- The transition period ends on 31 December 2025. Until then, emphasis will be placed on reporting obligations.
- More extensive obligations will be introduced as of 1 January 2026. Importers will have to purchase CBAM certificates to offset CO2 emissions.
- When the CBAM has been introduced in full per 2034, free emission allowances will no longer be allocated to EU companies.
During the phased introduction of the CBAM, prepare for the administrative and financial obligations you will need to meet to continue to comply with regulations.
Which points of civil law should you bear in mind?
Sanctions and risks in the event of non-compliance with CBAM obligations
Besides preparing to buy CBAM certificates, your company must also comply with strict reporting and administrative requirements. To do this, start by applying for the status of authorised declarant in 2025. You will not be able to import CBAM goods without this status. Authorised declarants will be expected to submit a CBAM declaration for the previous calendar year to the competent authority by 31 May each year, starting on 31 May 2027. Declarants must also surrender a number of CBAM certificates to the authority before 1 July each year. The number of certificates to be surrendered depends on the 'embedded emissions' (amount of emissions per imported product).
The European Commission (EC):
- checks the CBAM reports submitted to the CBAM register.
- compares the data in the reports with the corresponding customs declarations.
- carries out targeted and random checks on the reports.
If data is found to be incorrect, or if you fail to submit reports, this could lead to significant administrative sanctions, penalties and possibly legal action too. For example, the deadline for the first quarterly reports was January 2024.
The Dutch Emissions Authority (NEa) monitors fulfilment of the obligation to submit a CBAM report after the end of each quarter. If a CBAM declarant does not submit a report, the NEa can take enforcement action.
The main sanctions follow below:
- Penalties
These can be as much as 4% of a company’s EU-wide annual turnover in the previous year.
- No imports or products seized
In the event of non-compliance, the NEa may not allow you to import the products in question, or it may seize them.
- Confiscation of profits
The NEa may confiscate the profits you have made on products that do not comply with the CBAM.
- Exclusion from public tenders
The NEa may exclude your company from participating in EU tenders for 12 months.
- Ban on simplified due diligence procedure
Your company will not be allowed to use the CBAM simplified due diligence procedure in the event of repeated or serious infringements.
- Naming and shaming
The NEa may publicly announce violations on the EC website.
If you do not follow the rules, other stakeholders will be able to take measures in addition to the sanctions imposed by the NEa. Directors have a duty of care towards the company and its stakeholders and, as such, are responsible for ensuring compliance with all relevant laws and regulations. If your company does not comply with the CBAM obligations, it could be exposed to significant financial risks, which could also undermine the confidence of customers, partners and investors like:
- Contracting parties
They may claim compensation if they incur losses or additional costs because contractual obligations have not been met, e.g. because of delays in the delivery of products or additional administrative costs.
- Shareholders
They will be able to take action if non-compliance leads to losses for the company, e.g. a fall in the share price or a loss of return. If they can demonstrate that their loss is a direct result of non-compliance, they can bring civil proceedings and file claims against the company or you as a director.
So, your duty of care requires you to ensure full compliance with the CBAM rules. This will protect you and your company from legal and financial risks.
Contractual obligations
To manage the risks of non-compliance with the CBAM requirements, your company must observe the CBAM regulations internally and make compliance a contractual requirement. This can be achieved by including clear agreements in contracts with your suppliers and customers on subjects including guarantees, the provision of information, price adjustments and rules on the settlement of disputes.
Guarantees about information provision and reporting obligations
- Make clear contractual agreements about the registration of CO2 emissions and provision of the data required. Detailed information must be obtained about the CO2 emitted when goods are produced in the country of origin. So, you could include a clause stating that the supplier is to provide you with emission data (for example).
- When reviewing contracts, you could include 'guarantees’ in a guarantee clause. In this way, the supplier confirms that the data it provides about CO2 emissions are correct and complete. If your supplier does not comply with this guarantee, there will be legal consequences, e.g. liability for breach of contract. As a company owner, you will have the right to hold the supplier liable for the resulting losses. Other options include compensation from the supplier and termination of the contract between you and a supplier.
Note
As a company owner, you cannot unilaterally amend existing contracts. So, check what you are able to do.
- See what scope existing contracts give you. Do they contain an amendment clause or are unilateral amendments allowed?
- Make sure you approach contracting parties to discuss the amendments you want to make.
- When entering into new contracts, create flexibility by including specific amendment and termination clauses that take into account changing circumstances.
Price adjustments
Introduction of the CBAM may lead to higher import costs, e.g. because of the need to buy certificates to compensate for the CO2 that imported goods emit.
- Discuss with suppliers which of you will be responsible for the cost of CBAM certificates.
- In contracts, make clear agreements about the apportionment of costs and check whether existing contracts contain provisions that allow for price adjustments as a result of cost increases like these.
- New contracts must explicitly state that additional costs resulting from the CBAM, e.g. the cost of buying certificates, may lead to price adjustments. This creates transparency and avoids unexpected disputes about cost increases associated with the new legislation.
Dispute resolution and choice of forum
- Consider rules on the settlement of disputes. Many contracts designate a specific court or jurisdiction for disputes in a forum selection clause. So, both parties agree that any disputes will be heard by a certain court.
- Include detailed rules on the settlement of disputes in contracts. This can be useful in disputes about matters like the provision of CO₂ data or the financial impact of CBAM rules.
- You could also include an arbitration clause.
Want more information about how to make your contracts more sustainable?
The introduction of the CBAM is a good opportunity for you to review your contracts. If you would like to know more about how to integrate sustainability into your contracts, read our white paper about sustainable contracting. It contains practical guidelines on how to embed sustainability ambitions in your commercial relationships.
Our specialists are always happy to help as well. Our teams help companies with the obligations that the CBAM rules create and also with the amendment of contracts. With the ultimate aim of limiting possible risks and liabilities. Contact us to make sure your company is well-prepared and able to fulfil all the new obligations.
To summarise: what do you need to do now?
If your company falls under the CBAM regulations, you must act quickly and carefully to ensure you comply. In other words, you must report accurately on the CO2 emissions of imported goods, adapt your systems and contracts and buy CBAM certificates to compensate for emissions.
The CBAM encourages companies to be more sustainable and innovative. Compliance with its rules provide the opportunity to position your company as a responsible party in terms of climate change and sustainability. Make sure you understand the CBAM requirements and meet the reporting obligations. As a director, you must be aware of your responsibilities and make certain that your company is fully compliant with the CBAM rules to avoid sanctions and financial risks. You will be well-prepared if you review and amend existing contracts and stay up-to-date on changes in regulations.
Want to know more about the consequences of CBAM?
Contact one of our Sustainable Tax specialists. They will be happy to help you.
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