EU Carbon Border Adjustment Mechanism

After several years of development, in April 2023, the European Parliament approved a Carbon Border Adjustment Mechanism (CBAM). In essence, the CBAM will tax the import of products that would be subject to a the EU carbon tax, had they been produced in the EU, so as to level the playing field between countries that apply a carbon tax, and those that don’t. It thereby serves as some incentive for other countries, like the US, to develop their own carbon tax.

The CBAM will start applying in its transitional phase as of 1 October 2023. It will initially apply to imports of certain goods whose production is carbon intensive and at most significant risk of carbon leakage: cement, iron and steel, aluminium, fertilisers, electricity and hydrogen.

Once the permanent system enters into force on 1 January 2026, importers will need to declare each year the quantity of goods imported into the EU in the preceding year and their embedded GHG. They will then surrender the corresponding number of CBAM certificates. The price of the certificates will be calculated depending on the weekly average auction price of EU ETS allowances expressed in €/tonne of CO2 emitted.