PROPOSAL ON EU CARBON BORDER ADJUSTMENT MECHANISM
On 14 July, as part of the Fit for 55 Package, the European Commission adopted a proposal on a Carbon Border Adjustment Mechanism (CBAM), an environmental policy tool that will equalise the price of carbon between domestic products and imported goods for certain sectors. The CBAM will aim to address the risk of carbon leakage which can undermine EU’s efforts when production is moved elsewhere to avoid EU carbon pricing.
Under the CBAM, EU importers will buy from national authorities carbon certificates corresponding to the carbon price that would have been paid, had the goods been produced under the EU’s carbon pricing rules. Conversely, once a non-EU producer can show that they have already paid a price for the carbon used in the production of the imported goods in a third country, the corresponding cost can be fully deducted for the EU importer. National authorities will authorise registration of declarants in the CBAM system, as well as reviewing and verifying declarations. In order to import goods covered under the CBAM into the EU, declarants must declare by 31 May each year the quantity of goods and the embedded emissions in those goods imported into the EU in the preceding year. At the same time, they must surrender the CBAM certificates they have purchased in advance from the authorities.
The CBAM will be phased in gradually and will initially apply only to a selected number of goods at high risk of carbon leakage: iron and steel, cement, fertiliser, aluminium and electricity generation. A simplified CBAM system, where importers will have to report emissions embedded in their goods without paying a financial adjustment will apply as from 2023 for selected products. The definitive system will become fully operational in 2026.
For more information on the CBAM, you can visit the dedicated Commission webpage.