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August 15, 2023
2023-1405

Polish Government seeks annulment of CBAM regulation in European Court of Justice

  • The Polish government announced that it is asking the General Court of the Court of Justice of the European Union to annul the EU Regulation establishing a carbon border adjustment mechanism.1
  • This request for annulment is part of two objections to measures of the European Union's "Fit for 55" package.

Executive summary

The Polish Government announced that it intends to request an annulment of the regulation establishing a carbon border adjustment mechanism (CBAM Regulation)2, arguing that the CBAM provisions are primarily fiscal in nature and therefore demand a unanimous vote to pass.

Background

On 16 May 2023, the CBAM Regulation was published in the Official Journal of the European Union, following its adoption by the Council and European Parliament on 25 April 2023. As environmental measure, the CBAM Regulation's legal basis in the EU treaties requires a majority vote to pass. Although Poland voted against the adoption of the CBAM Regulation, and Belgium and Bulgaria abstained, the CBAM Regulation reached a qualified majority.

In proceedings initiated on 8 August 2023, the Polish Government filed a request to annul the CBAM Regulation with the General Court of the Court of Justice of the European Union (CJEU). Based on the information made available so far, the Polish Government is arguing that the CBAM provisions are primarily fiscal in nature and therefore require a unanimous vote from all Council members (i.e., all 27 EU Member States) to pass. This is a different voting procedure than was applied for the CBAM Regulation, which was adopted on 25 April 2023 and required a majority vote from both the Council and the European Parliament.

If the action for annulment is successful (i.e., the CJEU admits the case and finds the action well founded), the CBAM Regulation can be annulled in full or in part from the moment of its adoption. Based on similar actions, it can take two years or more for a judgment to be rendered and the contested rules are generally not suspended during that period. During the legal proceedings, Poland retains the option to withdraw the request for annulment of the CBAM Regulations as well as the actions it initiated for the annulment of other legislative elements of the EU's Fit for 55 package.

Although the complaint has no immediate impact, the action could have significant impact on CBAM and the EU's Green Deal in the medium-term. Withdrawal of the CBAM Regulation, in full or part, could jeopardize the EU Commission's plans for the EU economic zone's competitiveness among industries that are subject to the EU Emission Trading System (EU-ETS) regulations. Therefore, businesses should consider the annulment request at the CJEU and its potential consequences in their CBAM implementation as well as general business strategy.

Political and institutional stakeholders had not offered official reactions, as of the publication of this Alert. It seems likely that the CBAM Implementing Regulation will be finalized at the same pace as other regulations and that there will be no delay in implementing the CBAM transitional period.

Businesses should continue to prepare for CBAM implications

As mentioned above, the action lodged by Poland will not lead to immediate suspension of the CBAM Regulation. Therefore, given the fast-approaching 31 January 2024 deadline for submitting the first CBAM report covering Q4 2023, businesses need to continue their efforts to prepare for their CBAM compliance obligations.

For more information on CBAM, please refer to our Global Tax Alert, Final regulations published for new EU Carbon Border Adjustment Mechanism (CBAM) and EU Emission Trading System revisions; CBAM transition period begins 1 October 2023, dated 22 May 2023.

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For additional information with respect to this Alert, please contact the following:

Carbon Border Adjustment Mechanism

EMEIA Sustainability Tax Services

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

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ENDNOTES

1 https://www.gov.pl/web/klimat/polska-zaskarzyla-do-tsue-kolejne-dwa-akty-prawne-bedace-czescia-pakietu-fit-for-55 (in Polish only) (checked on 14 August 2023).

2 Regulation (EU) 2023/956 of the European Parliament and of the Council of 10 May 2023 establishing a carbon border adjustment mechanism, OJ L 130, 16.5.2023, p. 52-104.

 

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