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First step towards EU carbon border tax

The EU will on Sunday take the first step towards implementing a system that will lead to taxes on some carbon-intensive imports.

On 1 October, the transitional phase of the Carbon Border Adjustment Mechanism (CBAM) will come into force.

The CBAM is aimed at reducing ‘carbon leakage’, which occurs when EU-based companies move production abroad to take advantage of lower environmental standards, or when EU products are replaced by more carbon-intensive imports.

It also aims to encourage cleaner industrial production in non-EU countries.

No financial adjustment

In its transitional phase, CBAM will apply only to imports of cement, iron and steel, aluminium, fertilisers, electricity and hydrogen.

EU importers of those goods will have to report on the volume of their imports and the greenhouse gas (GHG) emissions embedded during their production, but without paying any financial adjustment.

While importers are being asked to collect data for the fourth quarter of 2023, their first report will only have to be submitted by 31 January 2024.

‘Learning period’

The European Commission describes this phase as “a learning period” for all importers, producers and authorities.

It will allow the commission to collect information on embedded emissions in order to set out the methodology for the next stage, which starts in 2026.

To help EU importers and non-EU installations in the practical implementation of the new rules, a new CBAM transitional registry will become available on 1 October to help importers perform and report these calculations.

“The CBAM will tackle the risk of carbon leakage in a non-discriminatory way and in full compliance with WTO rules,” said commissioner Valdis Dombrovskis.

“The EU will be leading by example and encouraging global industry to embrace greener and more sustainable technologies,” he added.