EU legislators reached an agreement to tax carbon under the Carbon Border Adjustment Mechanism (CBAM), which will apply to imports across several sectors, forcing polluters to comply with EU environmental standards.
1. CBAM
CBAM will cover iron and steel, cement, aluminium, fertilisers and electricity, as proposed by the European Commission, plus, it will be extended to hydrogen. The mechanism will be set up to equalise the price of carbon paid for EU products operating under the EU Emissions Trading System (ETS) and the one for imported goods. This means that companies importing into the EU will be obliged to purchase so-called CBAM certificates to pay the difference between the carbon price paid in the country of production and the price of carbon allowances in the EU ETS.
👏 This morning, the EU agreed to put a fair price on greenhouse gas emissions embedded in carbon intensive goods entering the 🇪🇺
— EU Tax & Customs 🇪🇺 (@EU_Taxud) December 13, 2022
⏰ Want to know more about the Carbon Border Adjustment Mechanism?
Check out our 60-second explainer below.#CBAM #EUGreenDeal @EUClimateAction pic.twitter.com/78MOuXc1PO
“CBAM will be a crucial pillar of European climate policies. It is one of the only mechanisms we have to incentivise our trading partners to decarbonise their manufacturing industry. On top of this, it is an alternative to our current carbon leakage measures, which will allow us to apply the polluter pays principle to our own industry,” said MEP Mohammed Chahim.
2. Taxing carbon
In essence, a carbon border adjustment tax is a duty on imports, calculated based on the amount of carbon emissions resulting from the production of the product in question. With a fixed price on carbon, polluters are discouraged to release more emissions, and forced to optimize production and transportation in a more sustainable way.
Putting a price tag on products with a higher carbon footprint will help to prevent carbon leakage while respecting our international obligations in full.
Frans Timmermans, Commissioner for the European Green Deal
Thomas Pellerin-Carlin, director of the Jacques-Delors Institute’s energy center congratulated the EU agreement saying it was “the best that come of the trilogue” in order to ensure that products imported into Europe are subject to the same carbon price as if they had been produced in Europe.
CBAM is part of the “Fit for 55”, the EU’s plan to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels in line with the European Climate Law, in June 2021.
3. Carbon removal certification
To ensure compliance with the carbon border tax, on 30 November, the Commission launched a plan to certify the removal of carbon dioxide from the atmosphere as part of its efforts to reach zero emissions by 2050.
The so-called Carbon Removal Certification Framework (CRCF) will set the rules for companies and policymakers to monitor, report and verify that carbon dioxide is actually cleared from the atmosphere. Nevertheless, greenwashing concerns persist and the sector is urging policymakers to address it properly. “While this is a welcome progression, to unlock the potential of the carbon removal market in the EU, this new framework will need to be followed up with clear definitions, robust reporting requirements and detailed pathways for regulatory integration,” said Victoria Harvey, carbon removal research associate for BeZero Carbon.
