Content updated 16 May 2023
The CBAM mechanism
Under the Carbon Border Adjustment Mechanism (CBAM), importers will have to pay the EU’s own domestic carbon price on goods including steel, cement, aluminium, fertilisers, electricity and hydrogen. The European Parliament and the Council have agreed on a CBAM Regulation, which will enter into force in October 2023.
The CBAM mechanism complements the EU Emissions Trading System (ETS). It is intended to help reduce the risk of carbon leakage by encouraging producers in non-EU countries to “green” their production processes.
After a three year transition period, the CBAM will be gradually phased in, as ETS free allowances in sectors covered by the CBAM will be gradually phased-out. The CBAM will only apply to the proportion of emissions that do not benefit from free allowances under the EU ETS.
The system will be based on a system of certificates to cover the embedded emissions in products imported into the EU. It is not a ‘cap and trade' system, but the CBAM certificates are intended to mirror the ETS by letting importers purchase certificates. View the press release here.
Sectors covered
In principle, imports of goods from all non-EU countries are covered by the CBAM. Initially, the CBAM will apply to imports of the following goods:
- Cement
- Iron and steel
- Aluminium
- Fertilisers
- Aluminium
- Electricity (because it is mainly produced with coal in non-EU countries).
- Hydrogen.
Indirect emissions would also be included in the regulation.
Other continents
Carbon border adjustment mechanisms are already in place in some regions around the world, such as California, where an adjustment is applied to certain imports of electricity. A number of countries, e.g. Canada and Japan, are planning similar initiatives.
Certain third countries who participate in the EU ETS or have an emission trading system linked to the Union's (the European Economic Area and Switzerland) will be excluded from the mechanism.
