EU Carbon Boundary Adjustment System (CBAM) to Impact Korean Exporters
Starting in October, Korean companies exporting goods such as cement, electricity, fertilizers, iron and steel products, aluminum, and hydrogen to the European Union (EU) will be required to report their carbon emissions to the EU. According to a report published by the Korea International Trade Association, the EU’s CBAM applies to approximately 7.5% of total EU exports.
Under the CBAM, approved exporters will need to purchase and present CBAM certificates that correspond to the embodied carbon emissions of their exported products from the previous year. If the country of origin has already paid a carbon price, that amount will be deducted from the certificate required for presentation.
To allow third-country companies to prepare for their obligations related to carbon emissions calculation and certificate submission, the EU has set a transition period from October 2022 to the end of 2025. During this period, reporting obligations will be imposed, with the first report due in January 2024 for the period of October to December 2023.
Failure to comply with carbon emissions reporting obligations can result in fines ranging from 10 to 50 euros per tonne of unreported emissions. It is crucial for companies to accurately report their emissions to avoid higher fines in the future.
The impact of the CBAM on Korean exporters is expected to be significant. Out of Korea’s $68.1 billion worth of exports to the EU last year, $5.1 billion (7.5%) consisted of items subject to CBAM. Among these items, steel accounted for approximately 89.3% ($4.5 billion), making the steel industry the most affected sector. Aluminum, on the other hand, made up 10.6% ($540 million) of the goods subject to CBAM. Fertilizer, cement, and hydrogen exports accounted for just 0.1% of the total exports to the EU.
In addition to the current six major items, the EU is considering expanding the scope of the CBAM to include organic chemicals and plastics. This expansion could further impact Korean companies in these industries.
Lee Jeong-ah, a senior researcher at the Korea International Trade Association, highlights the importance for companies to establish a measurement and control system for embodied emissions to comply with the CBAM regulations effectively. Failure to do so may result in unfavorable accounting standards being applied.
As the EU aims to fully implement the CBAM in 2026, it is crucial for Korean exporters to adapt and prioritize their emission reporting strategies to maintain smooth trade relations with the EU.
By Lee Je-hoon
▲ Provided by KIMA Starting in October, carbon emissions must be reported to the European Union (EU) when exporting six major items, including cement, electricity, fertiliser, iron and steel products, aluminium, and hydrogen, to the European Union (EU). As of last year, the EU’s Carbon Boundary Adjustment System (CBAM) was found to apply to 7.5% of total EU exports.
On the 26th, the Korea International Trade Association published a report titled ‘A preview of the main content and implications of the pilot implementation phase of the EU Carbon Border Adjustment System’ containing this content.
The report submitted that CBAM allows pre-approved declarants to export goods such as cement, electricity, fertiliser, iron and steel products, aluminium, and hydrogen to the EU.
Approved exporters must purchase and present CBAM certificates corresponding to the embodied carbon emissions of products exported in the previous year. If a carbon price has already been paid in the country of origin, that amount will be deducted from the certificate to be presented.
The EU is setting a transition period from the 1st of next month to the end of 2025 to allow third country companies to smoothly prepare for their obligations to calculate incorporated carbon emissions and submit certificates before full-scale CBAM implementation in 2026 .
During the transition period, only reporting obligations are imposed. The first report will be for October to December 2023, the first quarter after the start of the transition period, and the carbon emissions report will be to be introduced in January 2024.
If a company does not comply with its carbon emissions reporting obligations, it will be subject to a fine of 10 to 50 euros per tonne of unreported emissions. The report submitted that companies need to be particularly careful because if dishonest reporting continues, higher fines will be imposed.
The report emphasized that when CBAM is implemented in earnest from 2026, companies exporting products subject to CBAM are expected to be significantly affected. In fact, out of Korea’s exports to the EU of $68.1 billion last year, the export amount of items subject to CBAM was $5.1 billion (7.5%).
In particular, the share of steel among items subject to CBAM is approximately 89.3% (USD 4.5 billion), so the steel industry is expected to be most affected by the implementation of CBAM. Aluminum accounted for 10.6% (USD 540 million). Fertilizer, cement and hydrogen exports to the EU were $5.44 million, accounting for just 0.1% of total exports to the EU.
The EU is said to be considering the inclusion of organic chemicals and plastics in addition to the six major items currently subject to CBAM.
Lee Jeong-ah, a senior researcher at the Korea International Trade Association, said, “Since embodied carbon emissions calculated in the Korean way will not be allowed from 2025, companies must respond by establishing a measurement and control system for embodied emissions to prevent unfavorable. accounting standards from being applied.”
Reporter Lee Je-hoon
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