Find key insight on the new Carbon Border Adjustment Mechanism (CBAM) that the EU is imposing and the implications this will have for non-members states like the UK’
EU Carbon Border Ajustment Mechanism (CBAM) – what is at stake for UK business?
As part of the EU’s “Fit for 55 package”, which aims to reduce overall EU greenhouse gas emissions by 55% in 2030, the European Commission set out several legislative proposals including the creation of a “carbon border tax” on imports, which would avoid EU based companies being made less competitive (and therefore relocating outside the EU) due to the costs of complying with EU environmental legislation, as well as provide new sources of funding for the EU. The development of this CBAM was done alongside the reform of the EU Emissions Trading System (ETS) as the two are crucially linked through the process of carbon pricing. The EU has now reached a final agreement on these two files this December.
What has been agreed?
The EU CBAM will set up a carbon levy on imports. Originally covering aluminium, steel, iron, cement, fertilisers, and electricity generation, CBAM’s scope has been expanded to hydrogen as well as “precursors” and some downstream products. During the transition period, other sectors for the CBAM to be expanded to will also be assessed, and currently all sectors covered by the ETS are planned to be included by 2030.
The CBAM will oblige EU importers to buy carbon certificates for imported goods, corresponding to the carbon price that would have been paid had the production taken place in the EU and been subject to the average weekly cost of carbon allowances in the EU ETS. The scheme would not in theory apply to them if non-EU producers have paid the same price for emitting when producing that product in their own country. Therefore, third countries will need to have a consistent carbon pricing with the EU one to avoid the levy – however in practice, very few
Exclusive My CBI member-only content 
