When the EU introduced a Carbon Emissions Trading Scheme (ETS) to incentivise heavily polluting industries to decarbonise nearly 20 years ago it was considered radical policymaking. But the threat of carbon leakage, where businesses move overseas to avoid the tax, has hampered the ETS’ impact.
Now Bloc legislators are ready to unleash a new framework in January 2023 targeted at solving this specific problem. Called the Carbon Border Adjustment Mechanism, or CBAM for short, the new policy will, in the first instance, apply a carbon price equivalent to that of the ETS (currently at around 60=70 euros per ton of CO2), to imports of electricity, iron, steel, cement, aluminium and some fertilisers. It will also eventually phase out ETS ‘free allowances’ currently given to heavy industry to stop them offshoring.
Firms won't have to pay any new tax until 2026, but from next year they will need to start counting the carbon embedded in their trading products.