This is an important mechanism introduced by the EU in response to their own climate change ambition. CBAM intends to put a ‘fair’ price on carbon emitted during the production of carbon intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries. The introduction of CBAM is aligned to support the decarbonisation of the EU industry.
The first EU CBAM reporting period started on 1st October. This affects any UK company acting as an importer into the EU or supplying EU clients with goods in the affected sectors. Whilst CBAM is not a customs measure, it is vital for any companies trading with the EU to understand the carbon footprint of their goods.
The CBAM will require importers of certain goods to the EU to purchase digital certificates for each tonne of carbon emissions embedded in their goods, the price of which will be based on the average weekly price of the EU’s Emissions Trading System (ETS) carbon permits. In its initial form, the CBAM will cover imports of aluminium, iron, steel, electricity, cement, and some fertilisers, however, there is scope for extending this further.
More information about this mechanism can be found here.