What is CBAM?
CBAM stands for ‘Carbon Border Adjustment Mechanism’, which is the EU’s planned new carbon border tax.
It will require importers of certain goods to the EU to purchase digital certificates for each tonne of carbon emissions embedded in their goods, the price of which will be based on the average weekly price of the EU’s Emissions Trading System (ETS) carbon permits. In its initial form, the CBAM will cover imports of aluminium, iron, steel, electricity, cement, and some fertilisers, however, there is scope for extending this further.
The EU aims to use this tax to prevent so-called ‘carbon leakage’, whereby carbon intensive producers move their operations outside of the EU to avoid carbon regulation. If approved by the European parliament and member states, the CBAM will be gradually introduced during a transitional period from January 2023, until it is fully operational and payments begin in January 2026.