On April 18, 2023, the European Parliament adopted a legislation package to reach the 2030 climate target agreed with the European Union (EU) Member States in late 2022.
One of these legislations, referred to as the Carbon Border Adjustment Mechanism (CBAM), aims to incentivize non-EU countries to increase their climate commitments to ensure that EU and global climate efforts are not undermined by production being relocated from the EU to non-EU countries with less ambitious policies.
The goods covered by CBAM include iron, steel cement, aluminum, fertilizers, electricity, hydrogen, and indirect emissions under certain conditions. Importers of these goods would have to pay the price difference between the carbon price paid in the country of production and the price of carbon allowances in the EU Emissions Trading System.
The CBAM will enter into its transitional phase on October 1, 2023, which will extend through 2025. During the transitional phase, the importers will have to report emissions embedded in their goods without paying the financial adjustment. Once the CBAM system becomes fully operational in 2026, EU importers will be required to declare annually the quantity of goods and the amount of embedded emissions in the total goods they imported into the EU during the preceding year, and to surrender the corresponding amount of CBAM certificates.
The CBAM text must be formally endorsed by the EU Council and will then be published in the EU Official Journal.
Link to the EU Parliament press release can be found here: Fit for 55: Parliament adopts key laws to reach 2030 climate target | News | European Parliament (europa.eu)
Link to the CBAM Q&A can be found here: Carbon Border Adjustment Mechanism (europa.eu)