What is CBAM?
CBAM, or Carbon Border Adjustment Mechanism, is the European Union’s carbon offset mechanism. The CBAM aims to prevent “carbon leakage”, a situation where companies shift production to countries with lower environmental standards to avoid stricter regulations and carbon costs in the EU. The CBAM targets imports of goods from outside the EU that have high greenhouse gas production.
How does CBAM work?
The mechanism consists of a carbon tax on selected imports into the EU. This tax corresponds to the carbon price that would have been paid if the goods had been produced in the EU under the current EU Emission Trading System (EU ETS).
The CBAM mechanism works through the following steps:
- Coverage of selected products: the CBAM applies to imports of products such as cement, electricity, fertilisers, iron and steel, aluminium, hydrogen and products made from these materials.
- Registration and reporting: Importers must register their products in the CBAM Trader Portal and report emissions associated with their production. This reporting is done on a quarterly basis.
- Determination of the carbon tax: The amount of the carbon tax is based on the amount of CO2 emissions associated with the production of the imported goods and the price of carbon allowances in the EU ETS (EU Emissions Trading Scheme). If the producer of the goods outside the EU has already paid emission charges, this amount can be deducted from the total tax.
Transition period: From 1 October 2023 to 31 December 2025, standard values for the greenhouse gas content of each type of good are used, allowing importers and manufacturers to adapt to the new rules.
Implementation and registration
The European Commission has put in place several steps to implement the CBAM, including the creation of a CBAM Trader Portal where importers can register their products and report emissions associated with their production. For a transitional period from 1 October 2023 to 31 December 2025, GHG default values for each type of good are used.
Importance of CBAM
The CBAM is essential for achieving the EU’s climate goals, in particular the reduction of greenhouse gas emissions and the achievement of carbon neutrality by 2050.
Key benefits include:
- Protecting European producers: the CBAM ensures that European producers are not disadvantaged compared to foreign competitors who do not have to comply with such stringent emission standards.
- Promoting green technologies: The mechanism stimulates investment in clean technologies and innovation by taking into account the true cost of carbon emissions.
- Global emission reductions: CBAM contributes to global emission reductions by encouraging lower carbon intensity production not only in the EU but also in non-EU countries.
For more information, visit CBAM on the European Commission’s website or CBAM on the Customs Administration’s website.
