Objectives of the Carbon Border Adjustment Mechanism (CBAM)
- Preventing carbon leakage
- Indirectly motivating foreign manufacturers to lower GhG
- Complementing the EU ETS
- Reinforcing international climate agreements and actions
As the EU increases its climate ambitions, the gap with third countries’ climate action is expected to widen, with an increased risk of carbon leakage. Carbon leakage occurs when a business transfers its production to another country with less emission constraints, in an «environmental dumping » objective.
Additionally, imports from countries with less or no GhG constraints may appear mechanically more competitive due to the added constraints and costs upon businesses inside the EU and other countries with strong climate policies.
Currently, the risk of carbon leakage is partially addressed under the “EU ETS” which is being extended to maritime transport, buildings, and road transport sectors. The CBAM specifically addresses imports of goods at EU borders and is WTO compliant.
Concerned Goods and measured GhG
The CBAM is meant for any goods in the future, but only a few significant ones are listed right now. The measured GHG in between brackets.
- Cement (CO2)
- Iron and Steel (CO2)
- Mineral and Chemical Fertilizers and related chemicals (CO2 N2O)
- Aluminum (CO2, PFC)
- Electricity (pre-calculated value)
The price to pay for the Certificates reflects the « embedded GhG emissions » of the imported quantities.
The « Specific Embedded Emissions » (SEE) is expressed in « CO2 per Tons of goods », and only concerns direct emissions necessary to the production of those imported goods (eg, Scope 1).
Electricity is subject to different certificate values due to the singularity of the energy market and transportation methods.
Certificate Price Calculation
Everything is in the downloadable document below summarizing CBAM Appendix 1.
Update July 2022: The EU parliament voted in favor of the CBAM in July 2022. The most significant change is that most deadlines are postponed by a few years. Reasons are plenty, such as the economic context, the ongoing war in Ukraine, the two years of covid lockdown, and the difficulties of populations and small companies in this context. Most objectives that were laid down for 2030 are postponed until 2035. This confirms our previous projections of a 35% reduction in GHG emissions instead of the 50% planned by the EU Commission (see the CSRD roadmap), 35% being highly optimistic as “CO2e” emissions are steadily rising in the EU, instead of being reduced.
This does not means that the CBAM will not have any effect, as it only concerns taxes and certificates for products imported in the EU from non-member states.