Last month’s move by the European Union to strengthen its Carbon Border Adjustment Mechanism is expected to hurt steel exporters globally in coming years. The EU Parliament is expected to draw up a final draft within the first half of this year. It is not known that how much of the recent amendment will be reflected in the final bill, amendment also aims for the full implementation of CBAM one year earlier, from 2026 to 2025. In addition, the initial draft included only direct emissions, which are emitted during the production process of goods. But the amendment also includes indirect emissions, which will include greenhouse gases emitted during the generation of electricity for the production of goods.The CBAM is linked to the EU Emissions Trading System as a carbon-pricing system for imports into the region. It is aimed at adjusting the price of certain imported products to the amount of CO2 emissions incorporated, in order to equalize carbon costs between EU products and imports.On 14 July 2021, the Commission adopted a proposal for a new Carbon Border Adjustment Mechanism which will put a carbon price on imports of a targeted selection of products so that ambitious climate action in Europe does not lead to carbon leakage. This will ensure that European emission reductions contribute to a global emissions decline, instead of pushing carbon-intensive production outside Europe. It also aims to encourage industry outside the EU and international partners to take steps in the same direction.Designed in compliance with World Trade Organization rules and other international obligations of the EU, the CBAM system will work as follows: EU importers will buy carbon certificates corresponding to the carbon price that would have been paid, had the goods been produced under the EU’s carbon pricing rules. Conversely, once a non-EU producer can show that they have already paid a price for the carbon used in the production of the imported goods in a third country, the corresponding cost can be fully deducted for the EU importer. The CBAM will also help reduce the risk of carbon leakage by encouraging producers in non-EU countries to green their production processes.To provide businesses and other countries with legal certainty and stability, the Carbon Border Adjustment Mechanism will be phased in gradually and will initially apply only to a selected number of goods at high risk of carbon leakage: iron and steel, cement, fertilizer, aluminium and electricity generation. A simplified CBAM system, where importers will have to report emissions embedded in their goods without paying a financial adjustment will apply as from 2023 for selected products with the objective of facilitating a smooth roll out and to facilitate dialogue with third countries. Once the definitive system becomes fully operational in 2026, EU importers will have to declare annually the quantity of goods and the amount of embedded emissions in the total goods they imported into the EU in the preceding year, and surrender the corresponding amount of CBAM certificates.
Last month’s move by the European Union to strengthen its Carbon Border Adjustment Mechanism is expected to hurt steel exporters globally in coming years. The EU Parliament is expected to draw up a final draft within the first half of this year. It is not known that how much of the recent amendment will be reflected in the final bill, amendment also aims for the full implementation of CBAM one year earlier, from 2026 to 2025. In addition, the initial draft included only direct emissions, which are emitted during the production process of goods. But the amendment also includes indirect emissions, which will include greenhouse gases emitted during the generation of electricity for the production of goods.The CBAM is linked to the EU Emissions Trading System as a carbon-pricing system for imports into the region. It is aimed at adjusting the price of certain imported products to the amount of CO2 emissions incorporated, in order to equalize carbon costs between EU products and imports.On 14 July 2021, the Commission adopted a proposal for a new Carbon Border Adjustment Mechanism which will put a carbon price on imports of a targeted selection of products so that ambitious climate action in Europe does not lead to carbon leakage. This will ensure that European emission reductions contribute to a global emissions decline, instead of pushing carbon-intensive production outside Europe. It also aims to encourage industry outside the EU and international partners to take steps in the same direction.Designed in compliance with World Trade Organization rules and other international obligations of the EU, the CBAM system will work as follows: EU importers will buy carbon certificates corresponding to the carbon price that would have been paid, had the goods been produced under the EU’s carbon pricing rules. Conversely, once a non-EU producer can show that they have already paid a price for the carbon used in the production of the imported goods in a third country, the corresponding cost can be fully deducted for the EU importer. The CBAM will also help reduce the risk of carbon leakage by encouraging producers in non-EU countries to green their production processes.To provide businesses and other countries with legal certainty and stability, the Carbon Border Adjustment Mechanism will be phased in gradually and will initially apply only to a selected number of goods at high risk of carbon leakage: iron and steel, cement, fertilizer, aluminium and electricity generation. A simplified CBAM system, where importers will have to report emissions embedded in their goods without paying a financial adjustment will apply as from 2023 for selected products with the objective of facilitating a smooth roll out and to facilitate dialogue with third countries. Once the definitive system becomes fully operational in 2026, EU importers will have to declare annually the quantity of goods and the amount of embedded emissions in the total goods they imported into the EU in the preceding year, and surrender the corresponding amount of CBAM certificates.
