Does the Carbon Border Adjustment Mechanism (CBAM) impact me?
The European Union (EU) is taking a bold step to combat climate change with the introduction of the Carbon Border Adjustment Mechanism (CBAM). This innovative policy, the world's first carbon border tax, aims to level the playing field for EU businesses and incentivise global climate action.
How does it work?
The CBAM works by imposing a charge on the carbon footprint of certain imported goods. This ensures that foreign producers pay a price comparable to what EU companies face under the EU Emissions Trading Scheme (ETS). This discourages businesses from relocating production to countries with lax environmental regulations.
Benefits of CBAM:
Protects EU businesses: CBAM safeguards European companies from unfair competition from countries with weaker climate policies.
Promotes global climate action: By making carbon-intensive imports more expensive, CBAM encourages international companies and countries to reduce their emissions.
Supports the EU's Green Deal goals: CBAM aligns with the EU's ambitious climate targets, aiming for a 55 per cent reduction in emissions by 2030 (compared to 1990 levels).
Current Status and Impact:
The CBAM is currently in a transitional phase until December 2025. During this period, companies are required to report the carbon footprint of their imports. From January 2026, EU importers will need to purchase emission allowances to offset the carbon emissions of their imported goods. This will directly impact companies' bottom lines, prompting them to source from low-carbon producers.
The CBAM's reach extends beyond the EU:
UK companies: As the UK is no longer part of the EU, British businesses exporting to the EU may be affected by CBAM. They will likely need to provide documentation on the carbon footprint of their products to comply with EU regulations.
Global impact: The CBAM is expected to have a ripple effect, pushing international companies to adopt cleaner production practices to remain competitive in the EU market. This could have a significant positive impact on global carbon emissions.
The Future of CBAM:
The EU intends to broaden the scope of CBAM to encompass more products and sectors by 2030. This comprehensive approach underscores the EU's commitment to tackling climate change at a global scale.
The CBAM is a groundbreaking policy with the potential to transform how businesses operate and encourage international cooperation on climate change. While the full impact of the CBAM remains to be seen, it represents a significant step towards a more sustainable future.