CBAM (Carbon Border Adjustment Mechanism)
EU's carbon tariff on imports to prevent 'carbon leakage'.
What is CBAM (Carbon Border Adjustment Mechanism)?
The Carbon Border Adjustment Mechanism (CBAM) is a European Union policy designed to put a carbon price on certain goods imported into the EU. Its primary aim is to prevent 'carbon leakage', which occurs when EU companies move carbon-intensive production abroad to avoid EU carbon pricing, or when EU products are replaced by more carbon-intensive imports. CBAM ensures that imported goods face a carbon cost equivalent to that faced by EU products under the EU ETS.
Why is CBAM (Carbon Border Adjustment Mechanism) important?
CBAM is important because it is a pioneering policy that extends the EU's climate ambition to its borders, promoting global decarbonization. It aims to level the playing field between EU and non-EU producers, incentivize trading partners to increase their climate ambition, and prevent the weakening of EU climate policies through carbon leakage.
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Frequently asked questions
Initially, CBAM will cover imports of cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen, chosen for their high carbon intensity and significant risk of carbon leakage.
It requires importers to purchase CBAM certificates corresponding to the carbon emissions embedded in their imported goods. The price of these certificates is linked to the EU ETS carbon price, ensuring imported goods face a similar carbon cost.
CBAM entered a transitional phase in October 2023, requiring reporting obligations, with the financial mechanism (requiring purchase of certificates) set to be fully phased in from 2026.