The EU is moving to implementation of a tax on foreign companies that want to import products that do not meet the EU’s own climate-protection standards.

The Carbon Border Adjustment Mechanism, was first proposed in July 2021, and would place a carbon price on imports of a targeted selection of products so that climate action in EU does not lead to ‘carbon leakage’. This will ensure that the EU emission reductions contribute to a global emissions decline, instead of off-shoring carbon-intensive production.

This week’s agreement will be complemented by the revision of the Emissions Trading System (ETS), with negotiations, and that will align the phase-out of the allocation of free allowances with the introduction of CBAM to support the decarbonisation of EU industry.

President von der Leyen said: “I welcome the political agreement reached this morning on the Commission's proposal for a Carbon Border Adjustment Mechanism. This is a central part of our European Green Deal, preventing the risk of carbon leakage. It is a huge step forward, as we raise our climate ambitions.”

The CBAM will initially apply to imports of certain goods and selected precursors whose production is carbon intensive and at most significant risk of carbon leakage: cement, iron and steel, aluminium, fertilisers, electricity and hydrogen. With this enlarged scope, CBAM will eventually – when fully phased in – capture more than 50 per cent the emissions of the ETS covered sectors. Under this political agreement, the CBAM will enter into force in its transitional phase as of 1 October 2023.

Given the close links between the new CBAM and the review of the EU ETS, currently under negotiation in ‘trilogue' between the co-legislators, the final technical details of the mechanism's functioning will need to be clarified. Once the text has been finalised, the European Parliament and the Council will have to formally adopt the new Regulation before it can enter into force.

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