Issue link: https://digital.shearman.com/i/1425143
4 6 BACKGROUND The CBAM will require importers of certain products into the European Union to purchase, on an annual basis, CBAM certificates sufficient to cover the cost of the emissions embedded in those products for the previous calendar year. The price of these certificates will be fixed centrally and will, in theory, correlate to that which would have been paid had the goods been produced under EU carbon- pricing rules. If an importer has paid a corresponding price in a third country, that cost can be deducted. In this way, the CBAM is designed to reduce "carbon leakage" — i.e., EU producers shifting abroad to take advantage of less rigorous environmental standards, or EU products losing market share to more carbon-intensive imports— and to encourage non-EU producers to decarbonize. The CBAM's initial scope of application will be limited to the iron and steel, aluminum, cement and fertilizer industries, as well as electricity, with other sectors to follow. Third countries that participate in the EU Emissions Trading System ("EU ETS") or that have an emissions trading system linked to the EU ETS will be excluded from the CBAM—including members of the European Economic Area and Switzerland. Imports from all other non- EU countries will be subject to the CBAM. IMPLEMENTING AND ENFORCING THE CBAM On June 3, 2021, an informal draft of the European Commission's CBAM proposal became public. According to that draft, a centralized CBAM Authority would be created with responsibility for implementing and enforcing the CBAM. In the July 14 proposal, references to the CBAM Authority have been replaced with "the competent authority of each Member State." Each Member State will be required to designate a national authority with responsibility for administering the CBAM within the country's borders (Article 11). Member States may additionally impose administrative or criminal sanctions for failure to comply with the CBAM "in accordance with their national rules"; such sanctions are required to be "effective, proportionate and dissuasive" (Article 26(5)). APPEALING FROM CBAM-RELATED DECISIONS The June 3 draft proposal additionally envisaged the creation of a central Board of Appeal to hear appeals from decisions of the CBAM Authority, with decisions of the Board of Appeal appealable before the European Court of Justice. The July 14 proposal makes no mention of the Board of Appeal. Instead, it stipulates that there shall be a right of appeal under national law against official decisions taken by Member States' authorities in connection with: • A refusal of an application for CBAM registration (Article 17(3));2 • A demand to surrender additional CBAM certificates (Article 19(4));3 • The imposition of penalties for: • failing to surrender the required number of CBAM certificates (Article 26(1) & Article 26(4)(f)); • introducing goods into the European Union without surrendering CBAM certificates (Article 26(2) & Article 26(4)(f)); and • non-compliance with reporting obligations, including, during the initial transitional period, the duty to submit a quarterly "CBAM report" to the competent authority of the Member State of importation (or, if goods have been imported into more than one Member State, to the competent authority of the Member State of the declarant's choice) (Article 35(5)(f)). The form that such an appeal might take—including the body before which an appeal may be brought (the courts, an existing administrative tribunal or a tribunal created to hear CBAM-related appeals), the timeframe for such an appeal and the rules of procedure—will therefore be a matter for each Member State. INSIGHTS 08 Dispute Resolution under the CBAM