Explained: The EU Carbon Emissions Tariff
The EU’s Carbon Border Adjustment Mechanism (CBAM) is a new tool to put a tariff on the carbon emitted during the production of carbon intensive goods that are entering the EU. It is also hoped it will help to encourage cleaner industrial production in non-EU countries.
The gradual introduction of the CBAM is aligned with the phase-out of the allocation of free allowances under the EU Emissions Trading System (ETS) to support the decarbonisation of EU industry.
Transitional phase for importers
From the start of October 2023 the CBAM started the application of a transitional phase, which means the first reporting period for importers end on January 31st 2024.
It will initially apply to imports of certain goods whose production is carbon intensive and at most significant risk of carbon leakage. That includes products like cement, iron and steel, aluminium, fertilisers, electricity and hydrogen.
The aim of the transitional period is to serve as a pilot and learning period for all stakeholders and to collect useful information on embedded emissions to refine the methodology for the definitive period.
Dedicated IT tools
The European Commission has developed dedicated IT tools to help importers perform and report these calculations, as well as in-depth guidance, training materials and tutorials to support businesses when the transitional mechanism begins. While importers will be asked to collect fourth quarter data as of 1 October 2023, their first report will only have to be submitted by the end of January 2024.
“The EU needs the Carbon Border Adjustment Mechanism to achieve its ambitious emission reduction targets and achieve climate neutrality by 2050. The CBAM will tackle the risk of carbon leakage in a non-discriminatory way and in full compliance with WTO rules,” said Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People.
“The EU will be leading by example and encouraging global industry to embrace greener and more sustainable technologies. On a practical level, the CBAM will contribute to the wider discussion about greater use of carbon pricing globally: another good way to fight climate change,”
“Fully compatible with World Trade Organization rules, CBAM is not about trade protection, but about protecting our climate ambition. We are committed to working closely with businesses in the EU and beyond, as well as with governments around the world, to make it a success,” said Paolo Gentiloni, Commissioner for Economy.
Impact on procurement and supply chain
A new report from The Conference Board in the lead-up to the first enforcement phase of the EU's Carbon Border Adjustment Mechanism (CBAM), a system that will levy imports of carbon-intensive goods, closing the price gap with EU-made products.
The new report called ‘Navigating Europe's Carbon Tariff: What is CBAM and What Does it Mean for Business?’ surveyed European Members of The Conference Board on how they expect CBAM to affect their companies. 83 percent of respondents–primarily senior procurement and sustainability executives– are expecting prices to rise, and 75 percent expect CBAM to influence their buying choices going forward.
"Our Europe-based Members are clear that implementing CBAM will increase prices of carbon-intensive products, possibly with knock-on effects for consumers," said Sara Murray, Managing Director, International, The Conference Board. "Our latest insights will help our Members better understand their responsibilities and the challenges they must prepare for over the coming 18 months."
Read more about the new EU Carbon Emissions Tariff and the impact it could have on procurement and supply chain operations.
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