FAQ: The EU Carbon Border Adjustment Mechanism (CBAM)

The EU Carbon Border Adjustment Mechanism (CBAM) is a regulatory tool designed to prevent 'carbon leakage' by applying a carbon price to specific imported goods, matching the price paid by EU producers under the EU Emissions Trading System (EU ETS). The mechanism covers cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen. It involves a transitional monitoring period starting in October 2023, followed by a definitive phase-in in 2026. Importers must purchase and surrender non-tradeable certificates based on the embedded emissions of their goods. The document highlights the necessity of phasing out free ETS allowances to ensure the CBAM's effectiveness and discusses the potential for reinvesting CBAM revenues into climate mitigation in developing economies.

• CBAM was introduced primarily to prevent 'carbon leakage', which occurs when EU production decreases or relocates to countries without carbon pricing due to the competitive disadvantage created by internal EU carbon prices.
• The mechanism targets specific imported sectors: cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen. It accounts for direct (Scope 1) emissions for all these products, while indirect (Scope 2) emissions are only covered for cement and fertilisers.
• The implementation follows a phased approach, beginning with a transitional monitoring period in October 2023 where importers submit quarterly reports, leading to the definitive phase-in during 2026.
• CBAM certificates are pegged to the average weekly price of EU ETS auctions to ensure the border price mirrors the internal carbon price. These certificates are neither tradeable nor bankable to prevent speculation and maintain decarbonisation incentives.
• The document argues that the full potential of CBAM requires the end of free allocation of allowances and the phasing out of indirect cost compensation, as these previous measures led to windfall profits and removed incentives for industry decarbonisation.
• Certain exemptions apply to countries participating in the EU ETS (such as Switzerland and EEA countries), those with comparable carbon prices, or specific electricity markets integrated with the EU internal market.
• Expected CBAM revenues are estimated at €1.5 billion per year starting in 2028, with 75% available. Stakeholders suggest these funds be reinvested in climate mitigation and adaptation in developing economies to align with the Paris Agreement and the CBDR-CR principle.

APA

Tamellini, L. (2024). FAQ: The EU Carbon Border Adjustment Mechanism (CBAM). Carbon Market Watch. https://carbonmarketwatch.org/2024/07/30/faq-the-eu-carbon-border-adjustment-mechanism-cbam/

Chicago

Tamellini, Lidia. FAQ: The EU Carbon Border Adjustment Mechanism (CBAM). Carbon Market Watch, 2024. https://carbonmarketwatch.org/2024/07/30/faq-the-eu-carbon-border-adjustment-mechanism-cbam/.

Wikipedia

{{cite report |last1=Tamellini |first1=Lidia |title=FAQ: The EU Carbon Border Adjustment Mechanism (CBAM) |publisher=Carbon Market Watch |date=30 July 2024 |url=https://carbonmarketwatch.org/2024/07/30/faq-the-eu-carbon-border-adjustment-mechanism-cbam/ |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{tamellini2024faq, author = {Tamellini, Lidia}, title = {{FAQ: The EU Carbon Border Adjustment Mechanism (CBAM)}}, institution = {Carbon Market Watch}, year = {2024}, month = jul, url = {https://carbonmarketwatch.org/2024/07/30/faq-the-eu-carbon-border-adjustment-mechanism-cbam/}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }