On May 16, the Regulation establishing an EU Carbon Adjustment Mechanism (CBAM) was published in the Official Journal of the EU and entered into force the following day. Under the CBAM, importers into the EU of carbon-intensive goods (mainly cement, electricity, fertilizers, iron and steel, aluminum, and hydrogen) will be required to pay a charge for the carbon emissions embedded in those products. This charge will be gradually phased in from 2026 to 2034, and eventually will equal the charge that would have been paid by an EU producer under the EU Emissions Trading System (EU ETS). The CBAM also imposes detailed reporting requirements. The transitional period provided in the CBAM will apply as of October 1, 2023, with importers being subject only to reporting requirements until December 31, 2025.
The CBAM, which is the first instrument of its kind in the world, is expected to significantly increase red tape and add costs for importers of carbon-intensive products into the EU. These companies will soon face important reporting obligations and, at a future stage, carbon charges.
At the same time, the CBAM will also impact a) foreign producers of these goods, which may have to share in the added charges with their importers, and b) EU companies, which will have to pay higher prices for the imported goods in question, as well as for any derivative products. Businesses should therefore pay close attention to these developments and start reviewing their supply chains in preparation for the full application of this new legislation.