The European Union Carbon Border Adjustment Mechanism (CBAM)
As part of the European Green Deal and the "Fit for 55" initiative, one key element involves revising the EU's current Emissions Trading System (ETS). This revision aims to broaden the system's scope by incorporating new sectors, reducing the overall quantity of allowances (annual cap), and phasing out the allocation of free allowances annually. These changes are intended to incentivise industrial decarbonisation while driving up carbon prices. To avoid carbon leakage, where consumers opt for goods produced in non-EU countries with lower emission reduction requirements or where no carbon price is imposed, the EU has introduced the Carbon Border Adjustment Mechanism (CBAM) to prevent companies relocating their production activities outside the EU to minimise costs associated with transitioning to greener production methods.
The CBAM regulation, which became effective on 17th May 2023 and was initiated on 1st October 2023, is designed to mitigate the risk of carbon leakage. It operates by levying a charge on the embedded carbon content of specific imports, mirroring the charge imposed on domestic goods under the ETS. This charge is adjusted to reflect any mandatory carbon pricing in the exporting country. To prevent EU producers from gaining an unfair advantage, the CBAM replaces the free ETS allowances currently granted to high-risk producers. By imposing a comparable carbon price on imported goods, the CBAM aims to level the playing field for both EU producers and importers. Additionally, it incentivises partner countries to adopt decarbonisation measures in their production processes. These regulations target specified goods in sectors such as cement, electricity, fertilisers, aluminium, iron, steel, hydrogen and electricity, along with certain upstream and downstream products, primarily focusing on iron, steel, and aluminium, with an ultimate aim to incorporate all products that are covered by the ETS regime.
Our services to industry support our clients understand the impacts and requirements of emissions based border regulation and taxation for the EU and upcoming border adjustment taxation.
Vysus offers the following services to industry to support their understanding and impact of the EU CBAM and further upcoming CBAM regimes:
- Gap assessment to meet CBAM administrative and technical requirements
- Emissions assurance services needed to fulfil CBAM compliance obligations
- Digital services for calculating and verifying emissions embedded in the production of products along the entire value chain via our Databox software service.