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Carbon Border Adjustment Mechanism

In May 2023, the European Parliament and Council adopted Regulation (EU) 2023/956 establishing a carbon border adjustment mechanism (hereinafter “CBAM” or the “CBAM Regulation”). CBAM is designed to apply the same carbon costs to imported products as would be incurred by installations operating in the EU.

The purpose of CBAM is to help EU achieve several previously set climate objectives and is part of the “Fit for 55” legislative package. The EU committed to reducing, by 2030, the net greenhouse gas emissions by at least 55% compared to the 1990 levels, and the aim is that they reach zero by 2050, for a climate neutral EU.

CBAM addresses the issue of carbon leakage – situations when, in order to cut costs related to climate policies, businesses transfer their production to other countries with less strict emission constraints, which in turn leads to increased emissions in those countries.

The initial, transitional phase of CBAM implementation, that will serve as a learning period for importers, producers, and authorities, started on October 1, 2023, and ends on December 31, 2025. During the transitional phase, the following industry sectors are covered by CBAM: electricity, iron and steel, cement, aluminum, hydrogen, and fertilizers. Importers of the relevant CBAM goods, during a given quarter, are to submit a CBAM report to the European Commission, no later than one month after the end of that quarter. This means that the first report will be due on January 31, 2024. The report is to include, inter alia, data on the actual embedded emissions and the total indirect emissions of the imported products.

As of 2026, importers will have to bear a “CBAM obligation” in the form of “CBAM certificates”, which they will purchase for every CBAM product imported into the EU. This will meet the CBAM’s aim of equalizing the price of carbon between domestic and imported products.

How will CBAM affect businesses operating outside the EU

In December 2023, the European Commission issued a Guidance Document on CBAM Implementation for Installation Operators Outside the EU (“Guidance Document”). Although not legally binding, the Guidance Document provides detailed explanations and advice aimed at helping operators outside the EU understand CBAM and determine their responsibilities. As the operators have direct access to information on emissions of their installations, they will have a significant role in the functioning of CBAM. In this respect, it is advised that operators start preparing their monitoring methodology and actual monitoring as soon as possible. The Guidance Document states that operators should aim to share with importers a full year of data for 2023 in January 2024, in order to enable importers to submit their CBAM reports in a timely manner. Estimates should suffice for the period before actual emissions monitoring started.

In addition to the above, the CBAM Regulation allows for operators of production installations in third countries to register in a separate section of the CBAM registry, upon their request, and to make their verified embedded emissions from production of goods available to authorized CBAM declarants.

Developments in Serbia

On December 14, 2023, the Serbian Ministry of Mining and Energy announced a public procurement for an economic, legal, financial, and technical analysis of the impact of the CBAM Regulation on the sector of electricity production in Serbia. The aim of the mentioned analysis is to find a national model that will optimally protect the domestic market and respond to the requirement of the CBAM Regulation. The deadline for preparation of the analysis is six months as of conclusion of the agreement.

It may also be worth mentioning that on December 21, 2023 the Serbian Ministry of Mining and Energy adopted the Draft of the Integrated Energy and Climate Plan of the Republic of Serbia for the Period until 2030 with Projections until 2050 (“IECP”).

The key goals of the IECP include a 45,2 increase in share of renewable energy sources in electricity production, a significant increase in energy efficiency, and reduction of greenhouse gas emission by 40,3% compared to 1990.

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Ana Čalić Turudija

Iva Popović