Mandatory Carbon Emission Reporting to EU from October... KITA Urges Establishment of Emission Measurement System

Martial Arts, EU CBAM Report Published
Steel Accounts for 89% of CBAM Target Items
Fines for Non-Compliance with Reporting

Starting from the 1st of next month, when exporting six major items?cement, electricity, fertilizers, iron and steel products, aluminum, and hydrogen?to the European Union (EU), it will be mandatory to report carbon emissions to the EU. Since fines will be imposed for non-compliance with the reporting obligation, there are calls for Korean companies to exercise caution.

The Korea International Trade Association (KITA) International Trade and Commerce Research Institute announced this on the 26th in a report titled "Preview of Key Contents and Implications of the EU Carbon Border Adjustment Mechanism (CBAM) Pilot Implementation Period." The report analyzes the main contents of the implementation rules to be applied during the CBAM transition period and examines the impact on Korean companies accordingly.

Photo by Asia Economy DB

CBAM allows only pre-approved declarants to export goods such as cement, electricity, fertilizers, iron and steel products, aluminum, and hydrogen into the EU territory. Approved declarants must purchase and submit CBAM certificates corresponding to the embedded carbon emissions of the goods 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 certificates to be submitted.

Before the full-scale implementation of CBAM with these provisions in 2026, the EU has set a transition period from the 1st of next month until the end of 2025 to enable third-country companies to smoothly prepare for the embedded carbon emissions calculation and certificate submission obligations. The first report will cover the first quarter after the start, from October to December, and must be submitted in January 2024. Target companies must submit CBAM reports within one month after the end of each quarter, and submitted reports can be amended within two months after the relevant quarter.

During the transition period, there is no obligation to purchase and submit CBAM certificates; however, if companies fail to comply with the carbon emission reporting obligation, fines ranging from 10 to 50 euros per ton of unreported embedded emissions will be imposed. Additionally, if inaccurate reporting continues, increased fines will apply, so KITA explained that companies need to exercise special caution.

Until 2024, calculation methods implemented by third countries outside the EU will be allowed. However, from 2025 onwards, only the EU method will be applied, so target companies must prepare for the EU-style embedded emissions calculation.

Export status of CBAM target items among major EU exports. [Provided by Korea International Trade Association]

As of last year, among Korea's $68.1 billion exports to the EU, exports of CBAM-targeted items accounted for $5.1 billion (7.5%). In particular, steel accounts for about 89.3% ($4.5 billion) of the CBAM-targeted exports to the EU and is expected to be most affected. Aluminum (10.6%, $540 million) is also expected to be significantly impacted.

The EU is reportedly considering including organic chemicals, plastics, and other items in addition to the current six CBAM-targeted items. KITA advised that industries concerned should prepare for this in the long term.

Jung-A Lee, Senior Researcher at the Korea International Trade Association, said, "Our companies must faithfully comply with the CBAM transition period reporting obligations to avoid disadvantages such as fines. Especially from 2025, since carbon embedded emissions calculated by Korean methods will not be accepted, companies need to establish measurement and management systems for embedded emissions to ensure unfavorable calculation standards are not applied."

She added, "As carbon regulations in major countries are being strengthened, supply chains are expected to be reorganized toward low-carbon emission products in the future. Therefore, our companies need to explore long-term carbon management strategies such as carbon-neutral management and restructuring low-carbon supply chains."

This content was produced with the assistance of AI translation services.