Carbon Border Adjustment Mechanism (CBAM)

The European Union established in 2023 a carbon border adjustment mechanism (‘CBAM’), in the framework of its Fit for 55 legislative package.

The CBAM seeks to confirm a price has been paid for the embedded carbon emissions generated in the production of imports into the EU, and to ensure the carbon price of imports is equivalent to the carbon price of the EU domestic production. It eventually aims to cover more than 50% of the emissions covered in the EU Emission Trading Scheme (ETS). 

A transitionary phase of the scheme is being implemented for a number of goods and sectors (cement, iron and steel, aluminium, fertilisers, electricity and hydrogen) since October 2023 and until 2025. The definitive regime is intended to be implemented from 2026. The gradual implementation of he CBAM is planned in lined with the phase-out of the allocation of free allowances under the EU Emissions Trading System (ETS). 

The transitionary phase is designed as a pilot period, during which importers are solely subject to reporting obligations on greenhouse gas emissions embedded in their products (direct and indirect emissions-the latter for certain sectors only), using the following methodologies:

• full reporting according to the new methodology (EU method); 
• reporting based on an equivalent method (three options); and 
• reporting based on default reference values (only until July 2024).

As of 1 January 2025, only the EU method will be accepted; In addition, use of estimates will only be allowed for complex goods on the condition that estimates cover less than 20% of the total embedded emissions. 

Want to know more about this policy ? Learn more (https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en)