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What is the EU’s carbon border adjustment mechanism?

This article discussed the newly introduced Carbon Border Adjustment Mechanism (CBAM) and its comparison with existing Emission Trading System (ETS).

What is the story so far?

Recently, the co-legislators at the European Commission signed the Carbon Border Adjustment Mechanism (CBAM). It aims to encourage cleaner industrial production in non-EU countries, which inculcates a fair price system. It aims to address the emitted carbon, produced in the production of carbon-intensive goods. This new method would come into force from october 1. It may include certain goods to facilitate a smooth roll out with other nations. In this, the importers would have to pay levy from 2026.

What is Carbon Border Adjustment Mechanism (CBAM)?

The main objective of this initiative is to avert carbon leakage. It basically provisioned a system, in which carbon-intensive production manufacturers from EU can set up its unit in non-EU places.

The CBAM will come into force in 2026. The EU importers would buy carbon certificates as per the carbon pricing rules after that. Also, if a non-EU carbon producer is paying price (or tax) for carbon used in imported good production. The EU importers will get the same amount of deductions. The Commission has been set up with the relevant authorities of the member states. It would be responsible in reviewing and verifying declarations, also in managing the central platform to sale of CBAM certificates.

Is there any obligation on Importers?

Importers are bind to disclose carbon quantity emitted in the goods imported into the region in preceding year, by May end. The objective behind this is to encourage non-EU countries manufacturers to green their manufacturing processes. It also help in establishing a level playing field between imports and EU products. The initiative may further help in achieving climate neutral continent by 2050.

Is there any similar mechanism exist in EU?

There is also a similar scheme exist, referred as EU Emission Trading System(ETS). The CBAM mechanism is in parallel with ETS, as both aims to support the decarbonization of the European Union. 

What are the features of ETS mechanism?

The ETS mechanism is different from the CBAM. It put a limit on greenhouse gas emission, generates by industrial units. It also consist a provision of free carbon allowances to prevent carbon leakage. Free allowances aims to meet operational requirements and obligations.

What is the concern of the countries?

Initially the CBAM mechanism would apply on import of selected goods. The goods which have intensive carbon production and at risk of leakage, like cement, iron and steel etc. But, after full implementation it would capture greater portion of the emission in ETS covered sectors.