The Carbon Border Adjustment Mechanism (CBAM) is a tariff applied by the European Union on the carbon emissions generated during the production of specific goods imported into its territory. Its purpose is to prevent "carbon leakage" by ensuring imported products face a carbon price equivalent to that paid by EU domestic producers.
The Carbon Border Adjustment Mechanism, or CBAM, is a landmark climate policy and a central pillar of the European Union's "Fit for 55" Green Deal. It functions as an import duty designed to equalize the price of carbon between goods produced within the EU and those imported from abroad. The mechanism specifically targets the "embedded emissions"—the greenhouse gases released during the manufacturing process of imported goods—to ensure that companies outside the EU face similar carbon costs as their EU counterparts operating under the EU Emissions Trading System (EU ETS). This is critical for maintaining the competitiveness of European industries and encouraging global partners to adopt stronger climate policies.
The implementation of CBAM is phased, and its operational mechanics are designed to mirror the EU's internal carbon market. Here’s how it works:
- Scope: Initially, CBAM applies to imports in carbon-intensive sectors, including cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen.
- Declaration: EU importers of these goods must declare the volume of their imports and the associated embedded greenhouse gas emissions annually.
- Purchase of Certificates: To cover these declared emissions, importers must purchase and surrender a corresponding number of "CBAM certificates".
- Price Connection: The price of CBAM certificates is directly linked to the weekly average auction price of allowances on the EU Emissions Trading System (EU ETS). This creates a direct financial link between the cost of importing carbon-intensive goods and the EU's internal carbon price.
- Deductions: If a non-EU producer can prove they have already paid a carbon price in their home country, that amount can be deducted from the final CBAM obligation, thus incentivizing the adoption of carbon pricing systems globally.
Concrete Example
Imagine a Spanish company imports 10,000 tonnes of aluminium from a country that does not have a carbon pricing policy. The production of this aluminium generated 50,000 tonnes of CO2 equivalent (the embedded emissions).
Under CBAM, the Spanish importer must purchase 50,000 CBAM certificates. The price for each certificate will reflect the prevailing price of EU ETS allowances (for instance, €70 per tonne of CO2). This ensures that the imported aluminium carries the same carbon cost as if it were produced in Germany or France, thereby preventing unfair competition and discouraging the relocation of production to regions with less stringent environmental regulations.
For more official details, you can consult the official European Commission documentation on CBAM.