What is the MACF?

The MACF, Carbon Border Adjustment Mechanism, is the latest European regulation that follows the objectives of reducing carbon emissions of the 2019 Green Deal. An integral part of the “Fit for 55” toolbox, it is the European Commission's new system against carbon leaks from companies in the European Union (EU). As a reminder, a carbon leak is a phenomenon that sees companies relocate their production to countries with less demanding climate standards. The Commission targets products imported by European Union companies from countries outside the EU. For now, the MACF, also called CBAM in English, only applies to certain types of property, which belong to iron and steel, aluminum, cement, cement, fertilizer, electricity and hydrogen sectors.

What is a carbon leak?

Carbon leak is the movement of carbon emissions from a geographic area where climate standards are more stringent to a less regulated geographic area. We have used the two official definitions below to illustrate the concept:

• According to the Ministry of Ecological Transition, carbon leaks are “the phenomenon according to which the implementation of binding climate measures, aimed at reducing carbon emissions in a single region, implies the increase in carbon emissions in the rest of the world”.

• The European Parliament uses a more specific definition: “carbon leak is the movement of greenhouse gas-emitting industries outside the EU to avoid stricter standards”.

How does it work?

To get into the details of the MACF, let's take the example of a non-European supplier to a European company concerned by the new regulation. This supplier produces a good using raw materials transformed through industrial processes powered by energy. This transformation of raw materials into products also generates waste, including carbon emissions, which contribute to global warming. Since global warming has costly consequences for our economies (natural disasters, rising waters, etc.), climate policies aim to penalize these carbon emissions.

It is in this sense that some countries have set a carbon price that defines the cost of emissions for society. The MACF is precisely designed to correct the gap between the carbon price in the EU (EU ETS) and the price (or the absence of a price!) carbon in force in the country of the supplier.

Concretely, the adjustment mechanism involves two obligations: the declaration of carbon emissions from imported products and the purchase of certificates. The MACF ensures a competitive balance between European producers, already subject to strict climate regulations, and their extra-European competitors.

Also, the regulations cover sectors that are in full expansion (demand for cement could increase by nearly 23% by 2050 compared to 2018 levels according to the International Energy Agency) and energy-intensive, therefore emitters greenhouse gases (aluminium production is responsible for 2% of annual global emissions, according to sector specialist GEI, 2022).

The MACF calendar to follow

The establishment of the MACF will take place gradually, starting with a transition phase during the period 2024-2025 where only emissions reporting is mandatory. As of 2026, the final implementation phase will be implemented and will then require the purchase of MACF certificates, in addition to the reporting obligation.

A new obligation to report emissions data

Companies affected by the MACF regulation must submit a quarterly declaration during the transition phase, before this rate becomes annual from 2026. For example, the Importer will have to declare what are the production processes applied (blast furnaces or electric stoves), provide details on the materials used (% of nickel contained in iron) and logically indicate the calculation of direct and indirect emissions.

Initially, several methodologies and approaches are accepted to quantify carbon emissions contained in imported products. These methodologies differ in terms of complexity, precision, and types of input data. A distinction is made between the 3 methodologies the following main ones: methods based on calculation, methodologies based on measurement, methods specific to countries outside the EU.

In addition, and this is news appreciated by Importers, the deadline for filing the first MACF declaration has been extended by 30 days (for an initial date scheduled for January 31, 2024). Since reporting is mandatory, companies that fail to do so will sanctioned with €50 for each ton of CO2e emitted.

Obtaining MACF certificates

Importers' reports allow the European Commission to estimate the emissions of imported products and to prepare for the sale of MACF certificates. Certificate purchases will be gradually implemented between 2026 and 2034, until 100% of the carbon price gap between the supplier's country and the EU is covered.

This gradual entry into force of MACF certificates coincides with the gradual end of the free allocation of carbon emission quotas from which producers based in the EU benefit. Like reporting, the acquisition of certificates is mandatory. If the company fails to do so, it will be fined €100 per missing certificate.

How to file a MACF declaration?

To file your MACF declaration, you must follow several steps:

• Identify MACF products Among imported products,
• Collect the data necessary for carbon emissions calculations (e.g.: the production processes applied, the materials used, etc.),
• Calculate direct and indirect carbon emissions,
• Prepare the MACF declaration in accordance with the format required by the European authorities,
• File the declaration on the MACF register of the European Union.

The MACF temporary register is the online portal where Importers must file their MACF declarations.

Discover our dedicated article for her MACF statement.

What are the sectors concerned by the MACF?

The products (basic materials, semi-finished and finished products) concerned by the MACF are imports to the EU belonging to the following sectors:

• Iron and steel (cast iron pipe, screws, nuts, etc.),
• Aluminum (aluminum wires, aluminum bars, etc.),
• Fertilizer,
• Cement,
• Hydrogen,
• Electricity.

The sectors covered by the MACF are sectors already covered by the European carbon market (EU ETS) representing a significant part of global emissions.

Moreover, it is during the production phase that most of the carbon emissions of these products are generated. The measurement of emissions is therefore facilitated and allows a high level of precision.

To determine if a product is affected by the MACF regulations, you must compare the customs code (CN code) of the product you are importing to the list of codes specifically listed by the MACF regulations.

To find out if you are importing MACF products, Keewe provides you with a verifier that you can find via the Next link.

What are the methods of calculating carbon emissions to follow to complete the MACF declaration?

The MACF distinguishes 3 ️ main calculation methodologies:

➡ Calculation-based approaches involve determining emissions from source flows using activity data.

➡ The measuring-based methodology offers the highest level of accuracy by directly measuring emissions from the production process.

➡ Methods specific to countries that are not members of the EU.

The different methodologies for calculating the carbon emissions of MACF products required by the European Union.

Which countries have already implemented a carbon price?

There are two ways to put a price on carbon emissions:

• Establish a tax with a price for one ton of carbon emitted called a carbon tax.
• Create an emission quota market where obtaining an emission quota gives the right to emit one ton of CO2.

The carbon adjustment mechanism (EU CBAM) makes it possible to align the carbon pricing imposed on non-European producers (non-EU ETS-) with that imposed on European producers (EU ETS). AT CBAM = (EU IS) — (Non-EU ETS).

Which exporting countries are most exposed to the MACF?

The implementation of the MACF and the scheduled cessation of free emissions allowances to European producers should drive up product prices on the European Union market. Businesses based in the EU and those based abroad will face increasing pressure to reduce their carbon emissions.

The countries that export the largest quantities of MACF products to the EU are the most exposed. Here are the top 5:

• China,
• Turkey,
• UK,
• Norway,
• India.

These 5 countries represent almost half of the exports of MACF products to the old continent.

The main exporters of iron and steel products are China, the United Kingdom and Turkey (40% of EU imports between the three of them).

The top 5 aluminum exporting countries is made up of China, the United Arab Emirates, the United Kingdom, Turkey and Mozambique.

As far as fertilisers are concerned, the EU's most important trading partners are located in Africa: they are Algeria, Egypt and Morocco.

The largest exporters are typically middle income countries or higher, but some less developed countries are also highly exposed to the MACF.

The risks are particularly high for countries that have the following characteristics:

• High carbon intensity for the MACF sectors,
• A high proportion of their exports consists of MACF products intended for the EU.

Keewe and the MACF

At Keewe, our experts support you to understand the challenges of this new regulation. We offer you a unique solution to manage your MACF compliance:

• Simplified and automated data collection and management, thanks to the integration of transactions and supplier data,
• Calculation and reporting of carbon emissions,
• Generating your regulatory reporting document,
• Simulation of the financial impact of the MACF on your import costs.

Go to our CBAM page To find out more and contact us.