05.16.23

Carbon border adjustment mechanism – CBAM (other taxes)

Our post in December 2022 commented on the Carbon Border Adjustment Mechanism (otherwise referred to as CBAM), which expresses a markedly environmental agenda by taxing carbon emissions of specific goods. The CBAM implementation timeline is now taking pace, with the European Parliament adopting legislative rules in respect of the CBAM in April 2023. A transitional phase is expected to begin from 1 October 2023.

The transition phase will impose some specific obligations on EU importers- specifically, EU importers of goods covered in the scope of the CBAM regulations will be required to submit quarterly reports of any emission to the European Commission.

Currently, carbon-intensive sectors such as aluminium, cement, iron and steel, fertilizers, hydrogen and electricity are covered by CBAM. It is however forecast that CBAM will be extended in the coming years to all products covered by the EU Emissions Trading System (ETS), vastly extending its scope.

The effects of CBAM have the potential to be profound. It will be intriguing to see whether increased costs associated with carbon usage will dictate more conventional fuel usage in an era where environment and conservation awareness continues to expand.