The EU’s controversial extension of its carbon market regime to foreign producers takes shape.

As the climate crisis intensifies and the rigour of measures to reduce emissions in the EU increases, the problem of carbon leakage – where carbon-heavy production moves out of the EU to jurisdictions with laxer regimes – has triggered increasingly urgent calls to level the playing field. In response, the EU is introducing a Carbon Border Adjustment Mechanism (CBAM) that will impose additional duties on certain imported goods to reflect the carbon emissions generated from their production. This is designed not only to prevent carbon leakage and maintain the competitiveness of EU producers, but also encourage other countries to raise their climate ambitions and prevent global increases in emissions. It has also been touted as a means of raising much-needed revenue for climate action.

The main results of the negotiations are:

1.CBAM will apply from October 2023
2.The scope of CBAM that the Commission had proposed to limit to cement, electricity, fertilizers, iron, steel and aluminum is extended to cover many downstream products derived from iron, steel and aluminum as well as indirect emissions from electricity consumption (emissions considered as embedded in products because of electricity consumed in their production)
3.The inclusion of hydrogen as a product within the scheme
4.More centralized management by the Commission, which will have to maintain a centralized registry of CBAM declarants and the third country facilities from which they import as well as exercising reinforced control over the implementation of the scheme by Member States
5.Further powers for the Commission to adopt implementing, amending and supplemental acts not only to fill in the gaps but to act against circumvention, which is broadly defined.

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