The EU’s Carbon Border Adjustment Mechanism (CBAM) places a carbon tax on certain imported goods when production is “carbon intensive and at most significant risk of carbon leakage”.
The CBAM will initially apply to imports of fertilisers, cement, iron, steel, aluminium, electricity and hydrogen.
CBAM will enter into a permanent system on January 1, 2026, when importers will need to declare each year the quantity of goods imported into the EU in the preceding year and their embedded greenhouse gases.
Importers will then receive the corresponding number of CBAM certificates.
The price of the certificates will be calculated depending on the weekly average auction price of EU Emissions Trading System (ETS) allowances expressed in euro/tonne of carbon emitted.
The gradual introduction of the CBAM is aligned with the phase-out of the allocation of free allowances under the ETS to support the decarbonisation of the EU industry.
Carbon tax
CBAM was approved by the EU in April and entered into application in its transitional phase on October 1.
On its approval, Green MEP Grace O’Sullivan said: “These measures make sure that industries pay for their pollution, and makes it more attractive to invest in sustainable activities.
“This marks a significant step into the era of ‘green economics’ where we plan not just for profit and growth, but for human well-being and a just transition.”
The tax was brought in to prevent “carbon leakage”, which occurs when companies based in the EU move carbon-intensive production abroad to countries where less stringent climate policies are in place or when EU products get replaced by more carbon-intensive imports.
The European Commission outlines that the introduction of the tax is to put a fair price on the carbon emitted during the production of carbon-intensive goods that are entering the EU, and to encourage “cleaner industrial production” in non-EU countries.
When fully phased in, the initiative should capture more than 50% of the emissions in ETS covered sectors, according to the commission.
Farming concerns
Independent TD Michael Fitzmaurice said that Ireland relies on fertiliser and steel manufacturers outside the EU for farming and sheds, but that these businesses are being pushed away by the carbon tax.
“The agenda being set by the EU at the moment needs ferocious questioning,” Deputy Fitzmaurice said.
He added that this was going to be another tax for products coming into the EU and would “affect the whole food chain”.
Deputy Fitzmaurice said that there was a lack of communication between ministers and TDs.
He said he didn’t know about the initiative until a few days ago and that “the other TDs have no idea about it”.
“The ministers need to wake up and start highlighting what’s going on,” Deputy Fitzmaurice told Agriland.
“The farmer is expected to produce food at the same rate, even though there’s more costs being inflicted. The EU seems to have a vendetta against farmers,” he added.
To help stakeholders prepare for the new reporting obligations the European Commission has prepared written guidance documents to help navigate the transitional period.
It is also organising six online webinars, covering general features of the CBAM as well as the specifics of each sector.