CBAM [Carbor Border Adjustment Mechanism]

CBAM

"Climate change is a global problem that needs global solutions. As the EU raises its own climate ambition, and as long as less stringent climate policies prevail in many non-EU countries, there is a risk of so-called ‘carbon leakage'. Carbon leakage occurs when companies based in the EU move carbon-intensive production abroad to countries where less stringent climate policies are in place than in the EU, or when EU products get replaced by more carbon-intensive imports."

The Carbon Border Adjustment Mechanism (CBAM) is a policy tool proposed by the European Union (EU) to address carbon leakage and support global climate goals. Carbon leakage occurs when companies relocate production to countries with less stringent climate regulations, leading to an overall increase in global emissions.

CBAM aims to prevent this by imposing a carbon price on imports of certain goods into the EU, equivalent to the carbon costs faced by EU producers under the EU Emissions Trading System (ETS). This creates a level playing field, ensuring that imported goods are subject to the same carbon costs as domestically produced goods.

The mechanism initially targets sectors with high carbon emissions, such as cement, iron and steel, aluminum, fertilizers, and electricity. CBAM is intended to encourage other countries to adopt similar carbon pricing measures and to reduce the carbon intensity of their exports to the EU.

The implementation of CBAM is phased, starting in 2023 with a reporting requirement, and gradually introducing financial obligations from 2026. This mechanism is a key component of the EU's broader climate strategy to achieve carbon neutrality by 2050, known as the European Green Deal. It also raises important considerations regarding trade relations, as some countries view CBAM as a potential trade barrier.

Further information can be found in the official site of EU.