The European Commission released on 10.05.2023 a memo with “Questions and Answers: Carbon Border Adjustment Mechanism (CBAM)”.
The second question is “How will the CBAM work?…”
The answer is “…Designed in compliance with World Trade Organization (WTO) rules and other international obligations of the EU, the CBAM system will work as follows:
• As from the CBAM’s entry into force in 2026, EU importers will buy carbon certificates corresponding to the carbon price that would have been paid, had the goods been produced under the EU’s carbon pricing rules;
- Conversely, once a non-EU producer can show that they have already paid a price for the carbon used in the production of the imported goods in a third country, the corresponding cost can be fully deducted for the EU importer;
- The CBAM will therefore help reduce the risk of carbon leakage by encouraging producers in non-EU countries to green their production processes.
To provide businesses and other countries with legal certainty and stability, the CBAM will be phased in gradually and will initially apply only to a selected number of goods at high risk of carbon leakage: iron, steel, cement, fertiliser, aluminium, hydrogen and electricity generation. In a transitional phase, a reporting system will apply as from 1 October 2023 for those products with the objective of facilitating a smooth roll out and to facilitate
dialogue with third countries. Importers will start paying the CBAM financial adjustment in 2026. Carbon Border Adjustment Mechanisms are already in place in some regions around the world, such as California, where an adjustment is applied to certain imports of electricity. A number of countries such as Canada and Japan are planning similar initiatives. In addition, the IMF and the OECD have recently carried out work to study how such
measures could support international efforts to reduce greenhouse gas emissions. In the communiqué following their meeting of 9-10 July 2021, G20 Finance Ministers also mentioned the need for closer international coordination on the use of carbon pricing mechanisms and the work of setting up a Climate Club has been since ongoing.
Finally, as an EU own resource, revenues from CBAM will contribute to the EU’s budget, as laid out in the December 2020 Interinstitutional Agreement on budget and own resources…”