The transitional phase of the European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM), the Bloc’s new carbon tax on imported goods aimed at equalizing the carbon price paid by European producers with those outside of the EU, came into force on Oct. 1.
The so-called reporting phase will run until Dec. 31, 2025, after which the EU will begin collecting CO2 emissions charges at its borders. It will be the world’s first mechanism to impose CO2 emissions tariffs.
In its transitional phase, CBAM will apply to imports of fertilizers as well as imports of cement, iron and steel, aluminum, electricity, and hydrogen. EU importers of these goods will be required to report on the volume of their imports and the greenhouse gas (GHG) emissions during production, but will not be required to pay any financial adjustment at this stage.
While importers are being asked to collect data for the fourth quarter of 2023, their first report will only have to be submitted by Jan. 31, 2024, the European Commission said in a media statement last week.
The Commission adopted the reporting rules for importers of products under CBAM in August (GM Aug. 25, p. 29) after green-lighting CBAM in April (GM April 28, p. 30). The objective of the new tax is to avoid “carbon leakage,” a situation in which companies move production of emissions intensive goods to countries with less stringent environmental and climate policies.
The Commission said flexibilities have been built into CBAM’s structure for the first year of application, such as the use of default values for reporting of embedded emissions and the possibility to use the monitoring, reporting, and verification rules of the country of production.
“This transitional phase will serve as a learning period of all stakeholders,” the Commission said. “It will allow the European Commission to collect useful information on embedded emissions in order to refine the methodology for the definitive period, which starts on Jan. 1, 2026. As of that date, importers will need to buy and surrender the number of ‘CBAM certificates’ corresponding to the GHGs embedded in imported CBAM goods.”
The tariff has been raising concerns among the Bloc’s trading partners, especially China. At a forum last month, Xie Zhenhua, China’s leading climate envoy, urged countries not to resort to unilateral measures such as the EU levy, Reuters reported.
The European Commission said it needs CBAM to achieve its ambitious emission reduction targets and achieve climate neutrality by 2050. It believes CBAM will tackle the risk of carbon leakage in “a non-discriminatory way and in full compliance with WTO rules.”