To prevent “carbon leakage” the European Parliament Reached a Deal on a Carbon Border Adjustment Mechanism, CBAM for short.
An EU Carbon Border Adjustment Mechanism (CBAM) will be set up to equalise the price of carbon paid for EU products operating under the EU Emissions Trading System (ETS) and the one for imported goods. This will be achieved by obliging companies that import into the EU to purchase so-called 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 ETS.
CBAM will cover iron and steel, cement, aluminum, fertilizers and electricity, as proposed by the Commission, and extended to hydrogen, indirect emissions under certain conditions, certain precursors as well as to some downstream products such as screws and bolts and similar articles of iron or steel.
Before the end of the transition period, the Commission shall assess whether to extend the scope to other goods at risk of carbon leakage, including organic chemicals and polymers, with the goal to include all goods covered by the ETS by 2030.
Three Things CBAM Will Do
- Increase inflation
- Reduce global trade
- Hammer developing countries