What is CBAM?

The Carbon Border Adjustment Mechanism (CBAM), launched by the European Union on October 1, 2023, is a new regulatory framework designed to support the EU's climate objectives outlined in the European Green Deal. CBAM aims to prevent "carbon leakage," a situation where companies transfer production to countries with less stringent environmental regulations or where European products lose market share to imported goods with lower environmental standards.

To address this issue, CBAM requires importers to purchase certificates that reflect the carbon emissions associated with the goods they import into the EU. This ensures that EU-based producers and foreign competitors face similar carbon costs, thus maintaining a level playing field. The CBAM certificate system is linked to the EU Emissions Trading System (ETS), with adjustments to account for any carbon prices already paid in the country of origin. This alignment encourages other non-EU countries to adopt sustainable practices.

Who is involved?

CBAM currently targets high-emission industries that are susceptible to carbon leakage risks. The affected sectors include:

• Cement and Cement Products

• Electricity

• Mineral and Chemical Fertilizers

• Iron and Steel Products

• Aluminum Products

• Hydrogen

These sectors are further specified by unique Combined Nomenclature (CN) codes, which help identify products falling under CBAM regulations. For companies operating in or heavily relying on these sectors, it is crucial to determine which imports might require CBAM compliance. Over time, the EU may expand this list to include additional high-emission sectors as part of its commitment to stricter climate standards.

The timeline anticipates that from 2026, fines will be imposed for undeclared emissions on imports, and from that date, reporting must be followed precisely.