B&K Agency has concluded their research and policy recommendations for the European Union’s Carbon Border Adjustment Mechanism(CBAM).
CBAM is a climate measure that should prevent the risk of carbon leakage and support the European Union’s increased ambition on climate mitigation, while ensuring WTO compatibility.
CBAM is part of the “Fit for 55 in 2030 package”, the EU’s plan to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels, in line with the European Climate Law. The EU’s primary mechanism for incentivizing industry to decarbonize is through carbon pricing and to meet its 2050 targets, these prices will need to rise substantially.
CBAM extends the concept of carbon pricing to imports for the first time. Its advocates say that it has become even more relevant now with Europe’s rocketing energy.
Under the provisional agreement reached by the co-legislators in December 2022, CBAM will begin to operate from October 2023 onwards. Initially, a simplified CBAM would apply with importers obliged to collect and report carbon data. From 2026 onwards, the full CBAM will kick in.
However, many EU producers will pay their full domestic carbon costs, and the gradual removal of free allowances will cripple certain sectors and pose challenges for exports.
In this context, the report examines the specific case of the aluminium industry. Focusing on the European market, this document will go through the state of play of the CBAM legislative procedure, before targeting key insights for the aluminium industry. With the intent of giving a wider perspective on the topic, we will then review the main provisions concerning third countries. Finally, we will conclude our research effort with a few policy recommendations suitable for public and private stakeholders.
One thing is clear: the European Union needs to find a way to square the need to take climate action with the fundamental principles that underpin the global trading system without subverting its dynamic and productive industrial sector. The year 2023 will be critical in working through how best to do this.
EU Regulatory & Public Policy Analyst
Source: © B&K Agency LLC