Carbon Border
Adjustment
Mechanism
A new, green way of pricing carbon in imports to the EU
EU Commission, Brussels,
March 2023

European Green Deal
Whole economy approach:•A socially fair transition: tackling inequality and energy poverty through climate action,•A competitive transition: New opportunities through industrial and sectoral change•

A green transition: Protecting nature and increasing Europe’s natural carbon sink2Delivering the European Green Deal
CLIMATE

SocialClimateFund•Land Use,
Land Use
Change, andForestryRegulation

Innovation andinvestment•NextGenerationEU•

Revenues from extensión
and strengthening of ETS

ForestStrategy

3

TRANSPORT

Emissions
Trading
System forroadtransport andbuildings

EffortSharing
Regulation

Emissions
Trading
System…………
Aviation
Maritime…………

CarbonBorderAdjustment
Mechanism

PRICING AND
TRADE

EnergyTaxation
Directive
EnergyEfficiency
Directive

CO2
emissionsstandards forcars andvans

ReFuelEU
Aviation
Initiative•

A sustainable EU in asustainable world•

Global engagement andinternational cooperation
is key to address theclimate crisis

Renewable
EnergyDirective
Alternative
Fuels
Infrastructure
Directive
FuelEU
Maritime
Initiative

ENERGY

CBAM – Basic concepts

Why do we need CBAM?
As the EU raises its climate ambition anddifferences in levels of ambition worldwide
persist….
.. there is an increased risk of carbon leakage
CBAM addresses this increased risk, as anenvironmental measure in support of the fightagainst global climate change.

So, what is the aim of the CBAM?

Prevent carbon
leakage to ensure
effectiveness of EU
climate policy

Contribute to decarbonisation
globally and to reaching climate
neutrality by 2050

Complements andreinforces the EU ETSAnd how do we do this?
Four key elements of design

Mirror EU carbon pricing
through new mechanism
for imports into EU

Addressed at companies, notcountries, based on actual carbon
content of imported goods.

Comply with WTO
and be fully in line withinternational trade rules

Focus on carbon intensive
sectors

CBAM at a glance Focusing on actual carbon content in goods, not targeting countries!

 Companies are subject to CBAM only on individual merits and taking into account:

Actual carbon content of the imported goods;
Level of free allocations of EU ETS allowances in the EU;
Carbon price effectively paid in country of production.

 Possible exemption due to participation/linking to EU ETS Companies buy and surrender certificates to cover carbon content via annualdeclarations

Background on the EU ETSThe EU Emissions Trading System (EU ETS) set an overall
limit (“cap”) on the GHG emissions for the sectors
included (currently power, industry, aviation, from 2024
also maritime and from 2027/8 - new ETS 2 for buildings,
road transport and small industry).
The cap is reduced each year by a set amount based on
the reductions targets, ensuring that total emissions fall.
Within the cap, companies receive or buy emission
allowances, which they can trade as needed.
Allowances are placed on the market either byauctioning or free allocation. Then they are traded on
the secondary market or surrendered for compliance.

Carbon Price Equal carbon pricingEU businesses pay a carbon price on their production in the EU
Imports will need to pay a carbon adjustment, corresponding to the price they would have
paid if the goods had been produced under the EU’s carbon pricing rules (ETS).
The CBAM charge will be adjusted to reflect the level of EU ETS free allowances allocated toEU production of sectors in scope.

 No double pricing


If a non-EU producer can show that they have already paid a carbon price for theproduction of the imported goods in a third country, that amount can be deducted for the EUimporter.

CBAM – Implementation

Sectors Phase
Sectors during Transitional
 In the first phase:

CEMENT

IRON & STEELALUMINIUM

FERTILISER

ELECTRICITY

 Includes some precursors and downstream products
 Selected on the basis of 3 criteria:
 High risk of carbon leakage (High carbon emissions; High level of trade) Covering more than >45% of CO2 emissions of ETS sectors
 Practical feasibility
 In a second stage, extended to other sectors

HYDROGEN

Gradual implemnation of CBAM
Transitional phase
October 2023December 2025
Gradualphase-into allowbusinesses
to adjustPost-transitional phase
January 2026 onwards
Phase out of free allocation
Phase in of CBAM

Monitoring and reporting
Implementing rules tobe adopted by theCBAM Committee

Review
2025
Scope extension
Indirect emissions
Exports

Phasing out of free allocation /Phasing-in of CBAM
2026

2027

2028

2029

2030

2031

2032

2033

2034

2.5 p.p.

2.5 p.p.

5 p.p.

12.5p.p.

26 p.p.

12.5
p.p.

12.5
p.p.

12.5 p.p.

14 p.p.

2.5%5%

10%

22.5% 48.5%

61%

73.5% 86%100%

Example in 2028

NoCBAM

CBAM

No
CBAM

90%

Emissions

Emissions

Emissions

EU Benchmark

Emissions under CBAM scope
In CBAM scope
Scope 2
IndirectElectricity consumed forthe production of CBAM
goods

Not in CBAM scope

Scope 3
Indirect
Input material
under CBAM
scope
(in case ofcomplexgoods)

Scope 1
DirectEmissionsgenerated fromthe production ofCBAM goods at
installation level

Raw materials, transportationand distribution, previous
waste, etc

Upstream

16

Partially in CBAM
scope
Scope 3
Indirect

Consumption, transportationand distribution and end of life

Company production

DownstreamReportingemissions
Sectors during
TransitionalPhase During the transitional phase shall be reported
Direct and Indirect emissions for all CBAM goods
included in Annex I of the Regulation

 During the definitive phase shall be reported
Direct emissions for all CBAM goods included in Annex Iof the regulation
Indirect emissions, for all CBAM goods except those that
may receive indirect cost compensation under the EU
ETS framework (Annex IA)

 The Commission will work towards the extension of
the list of goods for which indirect emissions shallbe reported

Obligation for a CBAM declarantTransitional phase
October 2023 - December 2025


CBAM report containing the following:Total quantity of goods imported during
the preceding quarter
Total embedded direct and indirectemissions in those goods
The carbon price due in the country oforigin for the embedded emissions

 Report to be submitted each quarter

Post transitional phase
January 2026 onwards


CBAM declaration containing the following:Total quantity of goods imported during thepreceding calendar year
Total embedded emissions in those goods
Emissions to be verified by EU accredited
verifier
Total number of CBAM certificated to besurrendered
The carbon price effectively paid in the countryof origin for the embedded emissions

 Declaration to be submitted each year

De Minimis Rule
 CBAM shall not apply to: Goods contained in the personal luggage oftravelers coming from a third country and that do
not exceed EUR 150150 € Goods imported in the customs territory which do
not exceed EUR 150 per consignment as specified
in Article 23 of Council Regulation (EC) No1186/2009

Rules for Representatives
Importer is the CBAM declarant
No representation by others – Own import

ImporterDirect custom representative(Status: Customs Declarant)

Indirect custom representative(Status: Importer)

CBAMauthorised
declarant

Subject to CBAM
obligations(status ofauthorized
declarant+reports/declarations)

2025 review
The Commission shall present 2 reports before the end of the transitional period:1) Containing an assessment on:a) possibility to extend the scopeb) criteria to be used to identify the goods to be included in Annex I of the CBAM regulationc) technical requirements for calculating embedded emissions for newly added goodsd) progress made in international discussions regarding climate actione) governance system, including the administrative costsf) impact of CBAM on goods listed in Annex I imported from developing countriesg) methodology for the calculation of indirect emissions
2) Identifying products that are further down the value chain of the goods listed in Annex IRegular reports
1)Commission shall assess the impact of CBAM on:
I.
carbon leakage,
II. sectors covered,III. the internal market,
IV. Inflation
V. effect on industries
VI. international tradeVII. least developed countries
Additionally, as part of the same report, it shall also asses:I.
the governance system
II. the scope
III. circumvention practices
IV. application of penalties and aggregated informationon the emissions intensity per country of origin forthe products listed in Annex I

Report to be submitted before 1
January 2028, as well as every twoyears thereafter2)

Commission shall assess CBAM effectiveness inaddressing the carbon leakage risk for goods
produced in the EU for export to third countries
which do not apply the EU ETS or similar carbon
pricing mechanism

Report to be submitted every twoyears from the end of the transitional
periodList of Implementing and Delegated Acts


Implementing Acts













Art. 2(2) – Scope
Art. 5(6) – Application for authorisation
Art. 6(6) – CBAM declaration
Art. 7(6) – Calculation of embedded emissions
Art. 8(3) – Verification of embedded emissions
Art. 9(4) – Carbon price paid in a third country
Art. 14(6) – CBAM registryArt. 17(11) – Authorisation
Art. 18(1) – Accreditation of verifiersArt. 21(3) – Price of CBAM certificates
Art. 25(5) – Rules applicable to the importation ofgoods
Art. 31(2) – Free allocation of allowances under the EU
ETS and obligation to surrender CBAM certificates
Art. 35(6) – Reporting obligation

Delegated Acts

Art. 2(10 & 11) – Scope
Art. 18(3) – Accreditation of verifiersArt. 20(3) – Sale of CBAM certificates
Art. 27(6) – Circumvention

CBAM and global
decarbonisationCBAM is part of ourinternational cooperation on climate actions
Internationalcoordination ofclimate action

CBAM… climate action is urgent, so we need to act at all levels now
25… starting with CBAM goes hand in hand with ourengagement at international level

International cooperation

 CBAM can be complemented by bilateral,multilateral and international cooperation withthird countries

CBAM

GlobalCarbonPricing

 Establishment of a dialogue between countries
with carbon pricing instruments (‘Climate Club’) Building on OECD’s work under IFCMA paving the way for ambitious climate policies andglobal carbon pricing

ClimateClub

CBAM – an internationally open mechanism
 CBAM is open to decarbonisation efforts in third countries and favours
international coordination thanks to a five-tier system:
Actual emissions methodology – CBAM is based on carbon content of theimported goods.

Deduction of the carbon price paid in country of production from theadjustment on imported goods.

Countries applying EU ETS or linked to it are excluded.

Special rules on electricity for countries whose electricity market is “coupled”
with the EU internal market for electricity

Methodology tocalculate CBAMobligations

The CBAM methodology
Sectors
duringTransitional
Phase
From installation to goods approach
GHG emissions• The scope of the ETS is based on installations
carrying out activities leading to GHG emissions.

ETS and CBAM

• The scope of the CBAM is based on “goods”.
Complexgoods

Productionenergy intensive industries &electricity generation &commercial aviation

ETS
Raw material

Simplegoods
CBAM goods

CBAM
Fuel

Naturalgas• Therefore the CBAM methodology will translate
ETS methods for the calculation of emissions atinstallation level into methods for imported goods• This means setting rules to narrow the systemboundaries from production sites down to thelevel of goods• But a key difference between CBAM and ETS isthe distinction simple and complex goods

An example of simple and complex goods: iron and steel
Outside the scope ofCBAM

Precursors to steel under the CBAM scope

Steel goods under the CBAM scope

Precursors and simple goods

CO2

CO2

Complex steel goods

CO2

CO2

Limestone
Iron ore

CoalCoke

Sinter

Hot metal

Semi finished(e.g. blooms,billets, Slabs)

Finished (e.g.
tubesVerifiers
Accreditation
 Any person accredited in accordance with Commission Implementing Regulation(EU) 2018/2067 for a relevant group of activities shall be regarded as an accredited
verifier under the CBAM regulation.
 A national accreditation body may on request accredit a person as a verifier

Role The verifiers shall: prepare a verification report establishing the embedded emissions of CBAMgoods
 visit installations on-siteCalculation of the adjustment
Number of certificates

Actual emissions ofthe installation
producing importedproduct (actual tonesof CO2 per tonne ofproduct produced)

Emissions covered byfree allocation under
the EU ETS for therelevant product(tones of CO2 per
tonne of productproduced)

Price of certificatesTotal tonnesof importedproductAverageweekly priceof the EU ETS

Obligation andadjustment

CBAM Obligation

Obligation paid inexporting country on
the basis of equivalentcarbon price applied inthat country

Adjustment

Default values• When actual emissions cannot be adequately determined, embedded emissions shall bedetermined by reference to default values expressed in tonnes of CO2eq per tonne of CBAM
good produced.
• Default values shall be based on the average emission intensity of each exporting country foreach good under the scope of the proposed CBAM regulation, except electricity. Subject todata restrictions groupings may be applied• Based on a top-down methodology (i.e. using the publicly available data) replicating as muchas possible the ETS approach• Indicative datasets to be used: IPCC, OECD, IEA, international industry associations (e.g.
world steel and international aluminium institute)33

Next steps

Formaladoption• May 2023

35Outreach• Implementing
regulation• Guidelines• Online
trainings• Videos• Webinars

Transition
period• 1 October
2023

FinalCBAM

Review• Methodology• Implementingand delegatedacts• Reports• Analysis• 2026

Thank you© European Union 2020
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