The European Commission (E.C.) last week put forward its plans for its Carbon Border Adjustment Mechanism (CBAM), a move designed to put European Union (E.U.) companies on an equal footing with competitors outside the bloc with weaker carbon policies (GM March 26, p. 35).
The measure initially will be applied to imports of goods considered to be at high risk of carbon leakage: fertilizers, cement, aluminum, iron and steel, and electricity generation, and will be phased in from 2023, with full implementation from 2026. It will apply to direct emissions, those involved in the production of goods, and indirect emissions, such as electricity consumed during the production process of products.
Under the proposal, in the transitional period from 2023 through 2025, importers will be required to monitor and report emissions.
Under the CBAM system, E.U. importers would be required to buy digital carbon certificates, with each one representing a metric ton of carbon dioxide emissions embedded in their imported goods. The price of the certificates will be linked to the cost of permits in the E.U. carbon market and based on the average price of auctions of E.U. carbon permits each week.
However, the border levies can be reduced. According to an E.C. factsheet outlining the policy, if importers can prove, based on verified information from third-country producers, that a carbon price already has been paid during the production of the imported goods, the corresponding amount can be deducted from their final bill.
The plans are an integral part of the E.C.’s strategy to meet its new climate target. The “European Green Deal” sets out a clear path towards realizing the E.U.’s ambitious target of a 55 percent reduction in carbon emissions compared to 1990 levels by 2030, and to become a climate-neutral continent by 2050.
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, such as Canada and Japan, are planning similar initiatives.