Introducing the Carbon Border Tax: A New Mechanism to Green Up Europe’s Industrial Imports

The European Parliament and EU Member States announced this Tuesday morning that they have adopted an unprecedented mechanism to green up Europe’s industrial imports by charging for the carbon emissions associated with their production. Commonly known as a ‚carbon border tax‘, the scheme will subject imports in several sectors (steel, aluminium, cement, fertilizers, electricity and hydrogen) to the EU’s environmental standards. The mechanism, officially called the Carbon Border Adjustment Mechanism (CBAM), is quite complex. Companies importing products from outside the European Union will now have to pay for both the material and the greenhouse gas emissions and electricity required to produce it. Discussions are currently underway regarding phasing out free emission quotas which have been granted to European industries until now, allowing them to compete with non-European competitors. If these are removed, businesses may be forced to leave their countries of origin. The European Parliament wants to begin phasing out these free quotas as soon as 2027.

In summary, the European Parliament and EU Member States have adopted a new mechanism which will impose environmental standards on imports from outside of the European Union. This includes charging for carbon emissions associated with production, as well as phasing out free emission quotas which have been granted to businesses in order to help them compete with non-European competitors.

What is Carbon Border Adjustment Mechanism (CBAM)?

Carbon Border Adjustment Mechanism (CBAM) is a policy that seeks to ensure that goods imported into a country have the same carbon footprint as those produced domestically. It works by levying a fee on imports of goods and services from countries with lower carbon pricing than the importing country, while providing rebates for exports to those countries. This mechanism serves as an incentive for countries to reduce their emissions, as well as promoting global cooperation in climate action. CBAM has been proposed by several countries, including the United States and China, and is currently being discussed at the international level.
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Picture source: Jason Blackeye