CBAM: Things You need to know
On 16 May 2023, the European Union (EU) achieved a significant milestone by publishing legal regulations for the reform of the European Union Emission Trading System (EU ETS) and introducing the new EU Carbon Border Adjustment Mechanism (CBAM). This mechanism aims to encourage industrial decarbonization while addressing the potential risk of carbon leakage.
“Carbon leakage is a negative spillover effect that causes an increase in GHG emissions in a foreign country as a result of domestic emission reductions brought about by stricter climate policies. “
Initially, CBAM will cover products such as:
Fertilizer
Aluminium
Iron & Steel
Cement
Hydrogen
Energy
The following phase-out rates for free allowances will apply:
From 2026, the EU- ETS (European Union- Emission Trading System) is planning to phase out free allocations to the sectors concerned under the ETS, to ensure a level playing-field between EU producers and third-country importers. Until free allocations end in 2035, the CBAM will only apply to the proportion of emissions that do not receive free allowances under the EU ETS.
However, it is important to remain vigilant about the accuracy and robustness of studies related to CBAM, as the risk of Greenwashing exists. Greenwashing refers to misleading claims or practices that give the false impression of environmentally friendly actions. It is crucial for stakeholders to ensure transparency and accountability throughout the implementation of CBAM.
Important Dates
Transitional Period
Importers Submit CBAM report for goods Imported in given quarter
Post - Transitional Period
Definitive Period
Authorized CBAM Declarants submit CBAM Declarations and Surrender CBAM certificates for that year
Authorized CBAM Declarants submit CBAM Declarations and Surrender CBAM certificates for the preceding year