Understanding the EU’s Carbon Border Adjustment Mechanism (CBAM)

How does CBAM calculate emissions?

CBAM uses three main approaches to determine carbon emissions:

1. Based on actual data from the exporter.
2. Based on the average emission intensity of the third country for each of the goods, increased by a proportionately designed mark-up.
3. Based on the average emission intensity of the worst performing EU ETS installations.

Role of exporters in CBAM

• EU Importers: They are responsible for reporting the carbon emissions associated with the imported goods.
• Non-EU Exporters: They provide the necessary emissions data to help EU importers comply with CBAM requirements.

Implementation of CBAM :

1. Transitional Phase (Oct 2023 - Dec 2025): Importers report emissions data, but no fees are charged yet. This phase focuses on sectors with high emissions to prepare for the full implementation.
2. CBAM Phase-in (Jan 2026 onwards): Importers will have to acquire CBAM certificates for the GHG emissions associated with the production of goods in the exporting country that exceed the free allocation. Each CBAM certificate is equivalent to one ton of CO2e emitted. 
3. Expansion Phase (By 2030): CBAM will potentially extend to more goods in EU ETS sectors like oil, glass, lime, ceramics, metals, paper…
4. Fully operating (Jan 2034 onwards): Importers must fully account for all emissions tied to CBAM products and purchase corresponding CBAM certificates.

Why is CBAM important?

CBAM plays a key role in the EU's climate strategy by preventing carbon leakage and encouraging cleaner production globally. It levels the playing field, ensuring that imported goods face similar carbon costs as EU products, ultimately supporting global decarbonization. By introducing this mechanism, the EU aims to pave the way for a sustainable future, where every product’s carbon footprint is accounted for.