EU to launch Carbon border adjustment mechanism


On 10 May 2023, the EU Parliament and Council introduced Regulation (EU) 2023/956, the Carbon border adjustment mechanism (CBAM), which creates a new strategy within ‘The European Green Deal’ including a mechanism to address risk of carbon leakage in specific sectors by encouraging importers to use technologies that reduce emissions.

Along with the EU Emissions Trading System (ETS) strategy, the CMAB will make importers of risk products subject to a regulatory system that enforces carbon costs. The mechanism would co-exist with the EU’s ‘Fit for 55 Package’, WTO law and UN principles.

The Regulation defines cement, iron and steel, aluminum, fertilisers, hydrogen, and electricity as carbon leakage-related goods and would provide specific certificates for importers and sanctions for non-compliance.

A transaction to the Regulation will take place from 1 October 2023 until 31 January 2025 during which time each importer in the EU will comply with specific actions such as collecting data for the purposes of specifying the calculation of emissions method, applying for authorisation, registering in the EU CBAM registry, receiving official authorisation to operate and providing a biannual report. As of 1 January 2026, each authorised entity will be required to buy CBAM certificates whose price will be calculated on the weekly average auction price of the EU ETS allowances in EUR/ton of emitted CO2.

Upon filing a yearly report on goods imported in the preceding year, an entity may be eligible for a refund of the CBAM certificate costs.

For more information on the CBAM, contact your CMS client partner or local CMS experts Alexander Rangelov and Nikola Naydenov.