EU Parliament reaches provisional deal on Carbon Border Adjustment Mechanism

Negotiators of the European Council and the European Parliament have reached a provisional and conditional agreement on the Carbon Border Adjustment Mechanism (CBAM). The CBAM targets imports of products in carbon-intensive industries, with the aim of avoiding the relocation of European Union (EU) carbon-intensive industries to less ambitious non-EU countries. Under this mechanism, importers into the EU would have to purchase CBAM certificates to pay the difference between the carbon price paid in the country of production and the price of carbon allowances in the EU Emissions trading system (ETS). Consequently, only countries with the same climate ambition as the EU would be able to export to the EU without buying CBAM certificates.

The CBAM would initially cover a number of specific products from the most carbon-intensive sectors -  iron and steel, cement, fertilisers, aluminium, electricity and hydrogen - along with a limited number of downstream products (such as screws and bolts of iron and steel), as of October 2023 onward. It would function in parallel with the EU ETS and would replace the existing EU mechanisms to address the risk of carbon leakage, in particular the free allocation of EU ETS allowances. Initially a simplified CBAM would apply with reporting obligations only; it would be gradually phased in, while free allowance would be phased out under the revised EU emissions trading system (ETS) for the concerned sectors.

The agreement needs to be confirmed by ambassadors of the EU member states, and by the European Parliament, and adopted by both institutions before it is final. By the end of 2027, the European Commission will do a complete review of the CBAM mechanism.