Carbon Border Adjustment Mechanism (CBAM), also known as carbon tariff or carbon border adjustment tax, refers to the implementation of strict domestic climate policies, import or export of high-carbon products to pay or refund the corresponding tax or carbon credits.

Adoption of CBAM will encourage non-EU countries to reduce their emissions and prevent the risk of Carbon Leakage to reduce global greenhouse gas emissions, making a significant contribution to the implementation of EU and global climate targets.

EU carbon tariffs can be divided into transition period and post-transition period before they are formally implemented. Following the passage of the new Act of the European Parliament, the transition period is adjusted to 1 October 2023 to 31 December 2026,

Start the official implementation in 2027, one year later than the original bill (originally planned for January 1, 2026). From January 1, 2027, as a transitional period, carbon tariffs will be formally imposed on related products imported into the EU. After the transition period, the phasing out of free allowances under the EU Emissions Trading System and the simultaneous use of CBAM will gradually decrease the number of free allowances granted to all EU industries protected under the EU-ETS (European Union Emissions Trading System), culminating in the elimination of all free allowances in 2032.

1. Collection mechanism

October 1, 2023 (transition period) : During the transition period, you only need to declare the import volume of the product and the carbon emissions of the product, without paying any fees. During this period, importers should report quarterly one month after the end of each quarter (the first report is due by January 31, 2024).

January 1, 2026 (implementation period) : Enterprises need to report the annual carbon emission data of imported products, and also need to pay the corresponding carbon emission fee. The free carbon credits will be reduced year by year, in line with the phasing out of the EU-ETS free credits.

January 1, 2035 (formal implementation phase) (100% quota exemption implementation phase) : Enterprises need to report the annual carbon emission data of imported products and pay the corresponding carbon emission fee in full.

2. Scope of collection

From a country perspective, CBAM only exempts imports from some non-EU countries that have joined the EU emissions Trading System, or countries linked to the EU carbon market, including Iceland, Liechtenstein, Norway, Switzerland and five EU overseas territories, and does not give special treatment to developing countries and least developed countries.

From the perspective of the industry, with the continuous modification of the program, the scope of EU carbon tariffs is also expanding. Under the latest proposal, EU carbon tariffs are currently imposed on a wide range of sectors including electricity, steel, cement, aluminium, fertilisers, organic chemicals, plastics and hydrogen and ammonia products. With the continuous advancement of carbon tariffs, the scope of the levy will gradually expand to all sectors covered by the EU emissions trading system.

3. Accounting scope

Carbon emission range: includes only direct emissions from the production process and indirect emissions from the electricity consumed in the production process

Calculation rules different from ISO 14064 and product carbon footprint

In addition to the basic information declaration requirements such as the name of the production facility and geographical location, CBAM requires the following key information of the product to be declared: embedded carbon emissions of the product Indirect embedded carbon emissions of the product The carbon cost paid by the producing country CBAM reports the types of greenhouse gases covered include CO2, N2O and PFCs.