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Carbon Border Adjustment Mechanism (CBAM)

Carbon Border Adjustment Mechanism (CBAM):

The European Union (EU) has announced that its Carbon Border Adjustment Mechanism (CBAM) will be introduced in its transitional phase from October 2023, which will levy a carbon tax on imports of products made from the processes which are not Environmentally sustainable or non-Green.

  • CBAM will translate into a 20-35 % tax on select imports into the EU starting 1st January 2026.
  • CBAM is part of the “Fit for 55 in 2030 package”, which is the EU’s plan to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels in line with the European Climate Law.
  • The CBAM is a policy tool aimed at reducing Carbon Emissions by ensuring that imported goods are subject to the same carbon costs as products produced within the EU.
  • The CBAM will be implemented by requiring importers to declare the quantity of goods imported into the EU and their embedded Greenhouse Gas (GHG) emissions on an annual basis.
  • To offset these emissions, importers will need to surrender a corresponding number of CBAM certificates, the price of which will be based on the weekly average auction price of EU Emission Trading System (ETS) allowances in €/tonne of CO2 emitted.
  • CBAM will ensure its climate objectives are not undermined by carbon-intensive imports and spur cleaner production in the rest of the world.