CBAM
（Carbon Border Adjustment Mechanism）
Milestone
In Building a Carbon-Neutral Future
Background and Motivation
In order to contribute to the goals of the Paris Agreement, the European Commission proposed the Green Deal in December 2019, with the aim of making Europe the first climate-neutral continent by 2050. This target was officially enshrined in the European Climate Law, which came into effect in July 2021, committing to a 55% reduction in greenhouse gas emissions by 2030 compared to 1990 levels.
Against this backdrop, the European Union introduced the “Fit for 55” package on July 14, 2021. Through a series of legislative proposals, the EU aims to achieve carbon neutrality by 2050. Here are the key measures and objectives of the “Fit for 55” package:
- EU emissions trading system
- Social climate fund
- Carbon border adjustment mechanism
- Member states’ emissions reduction targets
- Emissions and removals from land use, land use change and forestry
- CO2 emission standards for cars and vans
- Reducing methane emissions in the energy sector
- Sustainable aviation fuels
- Decarbonised fuels in shipping
- Alternative fuels infrastructure
- Renewable energy
- Energy efficiency
- Energy performance of buildings
- Hydrogen and decarbonised gas market package
- Energy taxation
The proposal of the “Fit for 55” package reflects the European Union’s commitment and efforts to address climate change. The goal of this legislative package is to ensure a more sustainable and low-carbon development in Europe over the coming decades, while also driving global climate action.
The Features of the CBAM
The European Union’s Carbon Border Adjustment Mechanism (CBAM) is a significant climate policy proposed by the EU in 2021. Its primary objectives include promoting global greenhouse gas emissions reduction, ensuring fair competition, and preventing potential “carbon leakage.” CBAM is poised to become a landmark legislation in European history, with far-reaching implications on a global scale.
Carbon Pricing Mechanism: CBAM is linked to the EU Emissions Trading System (EU ETS), imposing carbon costs on imported products to ensure their carbon footprint is comparable to products produced internally in Europe.
Traceability Mechanism: Importers are required to provide carbon emission information for imported products to ensure reasonable carbon cost accounting.
Gradual Implementation: CBAM is phased in, allowing importers and producers sufficient time to adapt to the new system and providing flexibility in implementation.
Driving Global Climate Action: CBAM will encourage importing countries to pursue more aggressive climate action. The imposition of carbon pricing may incentivize countries to implement stricter climate policies to reduce carbon emissions.
Global Trade Impact: CBAM imposes additional carbon costs on products from exporting countries, potentially sparking disputes in international trade.
International Cooperation: The EU has stated that CBAM should be seen as a transitional measure to encourage the establishment of a more consistent global carbon pricing system. This requires global cooperation to collectively achieve climate goals.
Technological Innovation: The implementation of CBAM will stimulate companies to innovate technologically to reduce the carbon content of their products. This will drive the development of clean energy and low-carbon technologies.
Which embedded emissions need to be reported by each CBAM sector?
The following table provides an overview of the specific emissions and greenhouse gases covered and how direct and indirect emissions are determined for each sector falling under the CBAM scope. Each sector’s particularities have been taken into account when
designing the methods for reporting and calculating embedded emissions in these goods while mirroring the EU Emissions Trading System:
| Issue | CBAM good | |||||
|---|---|---|---|---|---|---|
| Cement | Fertilisers | Iron/Steel | Aluminium | Hydrogen | Electricity | |
| Reporting metrics | (per) Tonne of good | (per) MWh | ||||
| Greenhouse gases covered | Only CO2 | CO2 (plus nitrous oxide for some fertiliser goods) |
Only CO2 | CO2 (plus perfluorocar bons (PFCs) for some aluminium goods) |
Only CO2 | Only CO2 |
| Emission coverage during transitional period | Direct and indirect | Only direct | ||||
| Emission coverage during definitive period | Direct and indirect | Only direct, subject to review | Only direct | |||
| Determination of direct embedded emissions | Based on actual emissions, but estimations (including default values) can be used for up to 100% of the specific direct embedded emissions for imports until 30 June 2024 (i.e. CBAM reports due until 31 July 2024) and for up to 20% of the total specific embedded emissions for imports until 31 December 2025 | Based on default values, unless several cumulative conditions are met | ||||
| Determination of indirect embedded emissions | Based on actual electricity consumption and default emission factors for electricity, unless conditions are met (i.e. direct technical connection or power purchase agreement). Estimations (including default values) can be used for up to 100% of the specific indirect embedded emissions for imports until 30 June | Not applicable | ||||