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FAQ: The EU Carbon Border Adjustment Mechanism (CBAM)
Our latest FAQ has the answers to everything you always wanted to know about the Carbon Border Adjustment Mechanism.
Carbon border levies or taxes, which impose a carbon price on imports from higher polluting countries, can help tackle these risks and protect decarbonising industries from unfair competition.
The European Union has become the first region in the world to put in place such a levy. Known as the Carbon Border Adjustment Mechanism, the CBAM, which will become operational in 2026, aims to tackle these risks as well as address concerns about so-called carbon leakage, the unproven contention that industries relocate when forced to pay for their emissions.
By phasing out free allocations under the European Union’s Emissions Trading System (EU ETS), the CBAM will eventually ensure that EU heavy industries will start paying a carbon price for their pollution, finally reinforcing the ‘polluter pays’ principle. However, at present, the phasing out of free allowances is too slow and must be accelerated. The fact that only direct emissions will initially be included is also another problem with the CBAM, as it should include indirect emissions from the start.
Another drawback of the CBAM in its current form is the unclarity in the use of the revenue it will generate. At present, CBAM revenue will be earmarked for the EU’s “own resources”, but no further indication is given to how this will be spent. To ensure compliance with international trade rules and a fair global transition, CBAM revenue should go in its entirety to supporting climate action in vulnerable countries.
If the CBAM is to become an effective climate tool, these shortcomings must urgently be addressed.
When it comes to the CBAM, Carbon Market Watch focuses on:
“The CBAM represents a significant step forward and as the mechanism becomes operational in the coming years, it will hopefully nudge the EU’s trading partners to implement their own carbon pricing systems, placing the economic burden of emissions on the shoulders of actual polluters. We call on the EU to ensure CBAM better reflects the principles of equity and just transition.“
Lidia Tamellini
Expert on EU industrial decarbonisation
“The CBAM represents a significant step forward and as the mechanism becomes operational in the coming years, it will hopefully nudge the EU’s trading partners to implement their own carbon pricing systems, placing the economic burden of emissions on the shoulders of actual polluters. We call on the EU to ensure CBAM better reflects the principles of equity and just transition.“
Lidia Tamellini
Expert on EU industrial decarbonisation
Indirect emissions (scope 2) must be included in the CBAM from the start
Broaden CBAM’s scope to new products (such as bulk chemicals) already in 2026, with the end goal of covering all EU ETS sectors
Channel CBAM revenues to vulnerable countries to support their decarbonisation efforts
Ensure third countries set up their own fair and effective carbon pricing systems
Our latest FAQ has the answers to everything you always wanted to know about the Carbon Border Adjustment Mechanism.
The steel industry’s strategic importance coupled with its strong lobbying power have combined to shield it from a tightening of the Emissions Trading System. This is harmful to the climate, unfair to taxpayers and hurts the sector’s long-term competitiveness.
Carbon Market Watch has reviewed the draft European Commission implementing regulation on the reporting obligations during the transitional period of the newly introduced Carbon Market Adjustment Mechanism (CBAM). Whilst the
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