On 16 May 2023, the European Union (EU) achieved a significant milestone by publishing legal regulations for the reform of the European Union Emission Trading System (EU ETS) and introducing the new EU Carbon Border Adjustment Mechanism (CBAM). This mechanism aims to encourage industrial decarbonization while addressing the potential risk of carbon leakage.
Carbon leakage is a negative spillover effect that causes an increase in GHG emissions in a foreign country as a result of domestic emission reductions brought about by stricter climate policies.
Sectors Initially Covered
Initially, CBAM will cover products such as:
- Fertilizer
- Aluminium
- Iron & Steel
- Cement
- Hydrogen
- Energy
Phase-Out of Free Allowances
From 2026, the EU-ETS (European Union Emission Trading System) is planning to phase out free allocations to the sectors concerned under the ETS, to ensure a level playing field between EU producers and third-country importers. Until free allocations end in 2035, the CBAM will only apply to the proportion of emissions that do not receive free allowances under the EU ETS.
The Risk of Greenwashing
It is important to remain vigilant about the accuracy and robustness of studies related to CBAM, as the risk of greenwashing exists. Greenwashing refers to misleading claims or practices that give the false impression of environmentally friendly actions. It is crucial for stakeholders to ensure transparency and accountability throughout the implementation of CBAM.
Important Dates
Oct 01, 2023
Transitional Period
Importers submit CBAM reports for goods imported in a given quarter.
Dec 31, 2025
Post-Transitional Period
End of the transitional reporting phase, ahead of the definitive regime.
May 31, 2027
Definitive Period
Authorized CBAM declarants submit CBAM declarations and surrender CBAM certificates for that year.
Jan 04, 2021
Ongoing Declaration Cycle
Authorized CBAM declarants submit CBAM declarations and surrender CBAM certificates for the preceding year.
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