Carbon Border Adjustment Mechanism

The Carbon Border Adjustment Mechanism (CBAM) is a carbon tariff on carbon intensive products, such as cement and some electricity,[1] imported by the European Union.[2] Legislated[3] as part of the European Green Deal, it takes effect in 2026, with reporting starting in 2023.[4][5] CBAM was passed by the European Parliament with 450 votes for, 115 against, and 55 abstentions.[6][7]

Contents

The price of CBAM certificates would be linked to price of EU allowances under the European Union Emissions Trading System[8][9] and it is designed to stem carbon leakage from countries without a carbon price.[10]

Under article 6, importers must make a "CBAM" declaration with the quantity of goods, embedded emissions, and certificates for payment of the carbon import tax.

Annex I sets out the goods that attract the import tax including cement, electricity, fertilisers (such as nitric acid, ammonia, potassium), iron and steel (including tanks, drums, containers), and aluminium.

Annex II specifies that the CBAM does not apply to four non-EU member states that are included in the European Economic Area, namely Iceland, Liechtenstein, Norway and Switzerland.

Annex III sets out the methods for calculating embedded greenhouse gas emissions.

Exporters will be required to report their emissions and purchase CBAM certificates, which will increase their costs and reduce their profitability.

Discussion

One author has suggested that transition to a low-carbon economy requires technology and investment which may require investment in countries in the Global South. Proposed solutions include technology transfer and green finance.[11]

The carbon import tax is not yet proposed to apply to a wide range of other products or services, such as automobiles, clothing, food and animal products (such as ones that lead to deforestation), shipping, aviation, or the importation of gas, oil and coal.

References
  1. Gore, Tim (13 September 2021). "The proposal for a Carbon Border Adjustment Mechanism fails the ambition and equity tests". Heinrich-Böll-Stiftung. Retrieved 3 October 2021.
  2. "Ministry urges firms to step up decarbonization". Taipei Times. 2 October 2021. Retrieved 3 October 2021.
  3. Smith-Meyer, Bjarke (14 September 2021). "OECD boss: Digital tax deal can inspire global deal on carbon pricing". Politico. Retrieved 3 October 2021.
  4. "The EU Carbon Border Adjustment Mechanism : inspiration for others or Pandora's box?". www.engage.hoganlovells.com. Archived from the original on 28 September 2021. Retrieved 22 November 2021.
  5. Hancock, Alice; Espinoza, Javier (18 December 2022). "Brussels agrees details of world-first carbon border tax". Financial Times. Retrieved 20 December 2022.
  6. "Carbon border adjustment mechanism as part of the European green deal". Legislative Train Schedule (European Parliament). 20 November 2022. Retrieved 20 December 2022.
  7. "RESULTS OF VOTES (22 June 2022)" (PDF). European Parliament. 22 June 2022. Archived from the original (PDF) on 9 July 2022. Retrieved 20 December 2022.
  8. "A European Union Carbon Border Adjustment Mechanism: Implications for developing countries" (PDF). UNCTAD. Archived (PDF) from the original on 14 July 2021.
  9. "The Carbon Border Adjustment Mechanism (CBAM)". www.ey.com. 20 July 2021. Archived from the original on 28 January 2022. Retrieved 3 October 2021.
  10. "Carbon Border Adjustment Mechanism (CBAM) will stem 'carbon leakage', European Commission tax and customs chief tells MEPs". The Parliament Magazine. 13 September 2021. Retrieved 3 October 2021.
  11. Eicke, Laima; Weko, Silvia; Apergi, Maria; Marian, Adela (October 2021). "Pulling up the carbon ladder? Decarbonization, dependence, and third-country risks from the European carbon border adjustment mechanism". Energy Research & Social Science. 80: 102240. doi:10.1016/j.erss.2021.102240. S2CID 239666843.
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