What is CBAM?
CBAM stands for Carbon Border Adjustment Mechanism.
The Carbon Border Adjustment Mechanism (CBAM) regulation is a tool introduced by the European Union (EU) in an attempt to address the global problem of climate change.
CBAM was first proposed in 2019 as a component of the EU’s Green Deal and shall act as an integral element of the Fit for 55 package.
What is the significance of CBAM?
The Carbon Border Adjustment Mechanism is intended to introduce:
- A fair monetary amount to the carbon emitted during to production of carbon intensive goods that shall enter the EU
- Encourage sustainable industrial and production practices in Non-EU countries.
- To mitigate the risk of Carbon Leakage when countries based in EU offload the production of carbon intensive goods to countries and geographies that have less stringent climate policies in place.
Additionally, the introduction of CBAM is to allow streamlined replacement of the EU Emissions Trading System that would allocate free allowances.
When does CBAM come into effect?
The CBAM regulation officially comes into force on 16th May 2023.
For smooth implementation that CBAM regulation shall be implemented in a phased matter.
Initially, the CBAM will enter the transitional phase on 1st October 2023 having its first reporting period towards the ending of 31st January 2024.
The transitional period shall last untill 31st December 2025.
The EU plans to implement the final regime of CBAM by 2026.
Who is CBAM applicable to in the transitional phase?
During its transitional phase, CBAM regulations shall apply to the imports of the following goods:
- Cement
- Iron and Steel
- Aluminium
- Fertilizer
- Hydrogen
- Electricity
Reporting and Disclosures under CBAM
Initially the importers of goods covered under the CBAM regulations will have to report and disclose GHG (greenhouse gas) emissions embedded in their imports.
The embedded GHG emissions shall cover direct and indirect sources.
To provide appropriate guidance, a methodology is defined under the Implementing Regulation dated 17th August 2023.
