The Carbon Border Adjustment Method (CBAM)

The CBAM stands as a significant tool in  the effort to establish a fair pricing  mechanism for carbon emissions  associated with the production of carbon-  intensive goods entering the EU market.  This initiative is designed not only to level  the playing field but also to encourage  cleaner industrial practices in non-EU  countries.

Key Takeaways

• The transitional phase start date:  October 1, 2023

• Goods that fall within the scope of the CBAM include cement,  iron, steel, aluminium, fertilisers, hydrogen and electricity.

• During the transitional phase, importers must collect data on the carbon emissions from their suppliers

Purpose

The CBAM serves the vital role of  confirming that a price has been paid for  the embedded carbon emissions  stemming from the production of specific  good imported into the EU. This  mechanism is put in place to ensure that  the carbon price associated with imports  aligns with the carbon price of  domestically produced goods. By doing  so, the CBAM safeguards the integrity of  the EU’s climate objectives, preventing any  undermining of our collective efforts to  address climate change.

Key Components

The CBAM is scheduled to take effect  during its transitional phase starting from  October 1, 2023.  During its initial phase, it  will be applied to imports of specific  goods and selected precursor materials  known for their carbon-intensive  production processes and the highest risk  of carbon leakage. These goods include  cement, iron and steel, aluminium,  fertilisers, as well as electricity, and  hydrogen.

The primary goal of this transition period  is to function as a pilot and a learning  phase for all parties involved, including  importers, producers, and regulatory  authorities. Additionally, it aims to gather  valuable data on embedded emissions,  which will be used to enhance the  methodology for the definitive period.

Gradual Phasing

The gradual implementation of the CBAM  over a period of time will also facilitate a  methodical foreseeable, and balanced  transition for both EU and non-EU  enterprises, as well as for public  authorities.

Throughout this period, importers of  products falling under the scope of the  new regulations will be requested to  disclose GHG emissions embedded in  their imports, encompassing both direct  and indirect emissions. During the  transitional phase, no financial payments  or adjustments will be required.

Permanent System

Once the permanent system enters into  force on January 1, 2026, importers will be  required to annually disclose the quantity  of goods they imported into the EU during  the preceding year along with the  associated embedded greenhouse gas  emissions.

Subsequently, importers will be required  to surrender the corresponding number of  CBAM certificates. The pricing of these  certificates will be based on the weekly  average auction price of EU ETS  allowances, expressed in euros per tonne  of emitted CO2.

Contact

At ClimateDelta, we have a proven track-record supporting

• Importers: Gathering data from their suppliers.

• Suppliers: Providing relevant data to importers in the EU.

• Manufacturers: Accounting and reporting on their process emissions.

Contact us to solve your carbon-accounting needs.