The European Union has rolled out the first phase of its ambitious Carbon Border Adjustment Mechanism (CBAM), a system designed to impose levies on a range of imported commodities, including steel, cement, electricity, hydrogen, and other carbon-intensive products. This move is part of the EU's broader efforts to enhance climate action and address carbon emissions associated with imported goods.
CBAM, which was officially legislated in April, entered its initial phase of operation on a recent Sunday. During this phase, companies are primarily required to report emissions associated with their imported products. The actual payment of levies will commence in 2026, with fines imposed on companies failing to meet reporting requirements before this date. The mechanism will be gradually phased in, reaching full effect by 2032.
The European Commission has expressed its intention to adopt a lenient approach in the early stages of CBAM implementation, emphasizing the importance of this period as a pilot and learning phase for all stakeholders involved. This includes importers, producers, and regulatory authorities. The initial phase will also serve as a means to gather valuable data on embedded emissions, contributing to the refinement of the mechanism's methodology.
The introduction of CBAM is expected to create tensions with key trading partners of the EU. Some companies have conveyed concerns about their readiness to comply with the system, citing limited preparation time between April and October.
Notably, the largest exporters to the EU of products affected by CBAM are China, India, Russia, South Korea, Turkey, Ukraine, the UK, and the US, according to a report by the think tank Carnegie Europe. Brazil, South Africa, and India have expressed objections, labeling the mechanism as “discriminatory.” China voiced its criticism of CBAM during a recent forum.
International charity Oxfam issued a statement in December, accusing the tariff of placing the burden on nations that are least responsible for emissions and those most severely affected by the climate crisis.
EU Economy Commissioner Paolo Gentiloni emphasized the goals of CBAM, stating, “CBAM will encourage industry worldwide to embrace greener technologies.” He stressed that the mechanism is designed to prevent carbon leakage, which involves the relocation of production to countries with lower environmental standards.
Gentiloni clarified that CBAM is not intended for trade protection but rather to safeguard the EU's climate ambitions. The EU aims to collaborate closely with businesses within the EU and globally, as well as governments worldwide, to ensure the success of this initiative.
At present, CBAM applies to commodities such as aluminium, cement, electricity, fertilisers, hydrogen, iron, and steel, all of which are deemed to have carbon-intensive production processes that pose a risk of significant emissions leakage.
