Introducing the Carbon Border Adjustment Mechanism: A Step Towards Greener European Imports

Introducing the Carbon Border Adjustment Mechanism: A Step Towards Greener European Imports

The European Parliament and EU Member States announced this Tuesday morning that they have adopted an unprecedented mechanism to green the European industrial imports by charging emissions related to their production. Commonly known as a “carbon tax at the borders”, this process will subject imports in several sectors (steel, aluminum, cement, fertilizers, electricity and hydrogen) to EU environmental standards. This „Carbon Border Adjustment Mechanism“ is quite complex and companies importing goods from outside the EU will now have to pay for the material as well as the greenhouse gas emissions and electricity required to produce it. The goal is to turn European companies towards more environmentally friendly internal imports within the Union. A test period will begin in October 2023 and implementation of the mechanism depends on successful negotiations this week on ending free quotas which divide the EU. The European Parliament wants these free quotas to be gradually phased out starting in 2027. In summary, this new mechanism will charge companies for carbon emissions related to their imported products in order to encourage more eco-friendly internal imports within the EU.

The Basics of Carbon Border Adjustment Mechanism

Carbon border adjustment mechanism (CBAM) is a policy tool used to address the economic impacts of carbon pricing. It applies a fee or rebate at the point of import or export on goods and services based on their embodied emissions. This allows countries to level the playing field with their trading partners, by ensuring that imports from countries without similar carbon pricing policies are subject to the same environmental standards as domestically produced goods and services. CBAM also encourages countries to adopt more stringent climate policies, as it creates an incentive for them to reduce emissions in order to remain competitive in international markets.
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Picture source: Richard Horvath

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