The European Union’s Carbon Border Adjustment Mechanism (CBAM) entered into application in its transitional phase on Oct. 1.
CBAM is the EU’s landmark instrument to fight CO2 leakage and is an important part of the Bloc’s Fit for 55 Agenda. Its primary objective is to will equalize the price of carbon between domestically produced goods and imports. The mechanism aims to safeguard the integrity of the EU’s climate policies by preventing the potential shift of production to countries with less rigorous environmental standards or the substitution of EU products with more carbon-intensive imports. CBAM is a measure compatible with the World Trade Organization (WTO). It serves as an incentive for the global industry to adopt greener and more sustainable technologies.
During its transitional phase, the Carbon Border Adjustment Mechanism will only apply to the importation of cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. EU importers of these commodities will be obligated to report on the volume of their imports and the greenhouse gas emissions associated with their production. However, during this phase, there will be no financial adjustments required.
Importers are asked to gather data for the fourth quarter of 2023, but their initial report will not be due until Jan. 31, 2024. Additionally, the CBAM’s framework incorporates several flexible provisions for its first year of implementation. These include the utilization of default values for reporting embedded emissions and the option to adopt the monitoring, reporting, and verification regulations of the country of production.
This transitional phase is designed to function as a learning period for all stakeholders, including importers, producers, and regulatory authorities. During this phase, the European Commission will gather valuable data on embedded emissions, which will be used to enhance the methodology for the definitive period beginning in 2026. Starting from that date, importers will be required to buy and surrender the appropriate number of “CBAM certificates” equivalent to the greenhouse gases embedded in the imported CBAM goods.
To facilitate the practical application of the new regulations for both EU importers and non-EU facilities, a CBAM transitional registry will be accessible from Oct. 1, aiding importers in performing and reporting the necessary calculations. Additionally, the European Commission is currently releasing comprehensive written guidance, online training resources and webinars, industry-specific fact sheets, and a step-by-step checklist to provide support to businesses as they navigate the transitional phase.