- The EU Carbon Border Adjustment Mechanism (CBAM) is a new regulation that requires importers to buy certificates for emissions generated outside the EU.
- The CBAM is urgently needed as a correction to the existing EU Emissions Trading Scheme (EU ETS) and is designed to have a global impact.
- The ETS had unintended consequences, such as shifting production to countries with lower climate ambitions, known as ‘carbon leakage’.
- CBAM aims to provide EU producers with a level playing field, incentivize global decarbonization, and meet the EU’s emissions reduction targets.
- CBAM will be implemented in phases, starting in October 2023, with a transition phase and a definitive period from January 2026.
- CBAM will initially apply to certain items made from iron, steel, aluminium, cement, fertilizers, hydrogen production, and electricity imported into the EU.
- CBAM introduces its own definitions for ‘direct’ and ‘indirect’ emissions and distinguishes between ‘simple’ and ‘complex’ goods.
- Non-EU producers and EU importers will be impacted by CBAM, with importers responsible for procuring CBAM certificates from 2026.
- The introduction of CBAM may lead to price increases for EU manufacturers and consumers and a bigger financial impact on businesses subject to EU ETS.
- CBAM is urgent due to the risk of EU businesses shifting operations elsewhere and the need to reach climate targets by 2030.
- CBAM is designed to have a global reach and incentivize other countries to decarbonize, potentially triggering regulations in other parts of the world.
Source: blogs.sap.com
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
