WHAT IS CBAM AND WHO DOES CBAM AFFECT?
First, you may be wondering what the Carbon Border Adjustment Mechanism (CBAM) is. In essence, it is a new policy tool proposed by the European Union (EU) aimed at tackling carbon leakage and ensuring that the EU’s climate goals are met.
In today’s environmentally conscious world, the Carbon Border Adjustment Mechanism (CBAM) stands out as a pivotal policy introduced by the European Union (EU). Often dubbed as the EU Carbon Border Tax, CBAM addresses the pressing issue of carbon leakage while ensuring fair competition for European businesses and advancing global climate objectives.
CBAM serves as the EU’s strategic tool to accurately price the carbon emissions associated with the production of carbon-intensive commodities entering its borders. By doing so, it encourages cleaner industrial practices both within and outside the EU. Moreover, CBAM is meticulously crafted to align with the EU’s international commitments, including adherence to World Trade Organization (WTO) regulations.
This mechanism operates by levying charges based on the actual embedded emissions within imported goods, calculated in accordance with methodologies consistent with reporting standards under the European Union Emissions Trading System (EU ETS). In essence, CBAM reinforces the EU’s dedication to fostering sustainable industrial growth while mitigating the risk of carbon leakage on a global scale.
SO, WHO DOES CBAM AFFECT?
The Carbon Border Adjustment Mechanism (CBAM) has a direct impact on imports within several key sectors, including cement, iron and steel, aluminium, fertilisers, hydrogen, and electricity. These sectors were meticulously chosen based on stringent criteria, primarily focusing on their susceptibility to carbon leakage and their significant emission intensity.
As a result, these industries, upon full implementation of CBAM, are projected to encompass over 50% of the emissions within the industry sectors covered by the European Union Emissions Trading System (ETS). This deliberate selection underscores the EU’s commitment to effectively addressing carbon emissions while maintaining a level playing field for domestic businesses.
Looking ahead, there is potential for CBAM to expand its reach to encompass additional sectors under the ETS framework, further solidifying its role in promoting global sustainability standards.
