EU launches world's first carbon border tax to bolster green transition

European Union (EU) has launched the first phase of its Carbon Border Adjustment Mechanism (CBAM)aimed at imposing CO2 emissions tariffs on various imported goods, including steel, cement, and more, reported Reuters. This initiative is designed to safeguard the EU's commitment to sustainability by preventing the influx of environmentally detrimental foreign products that could jeopardise its green transition. The proposal has sparked concerns among trade partners, with China's top climate envoy, Xie Zhenhua, urging against unilateral actions, like the EU levy during a recent forum.

CBAM's initial phase

Although the EU will not start collecting CO2 emission charges at its borders until 2026, the commencement of CBAM's initial phase took place on Sunday (Oct 1).

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"To help EU importers and non-EU installations in the practical implementation of the new rules, a new CBAM transitional registry will become available on 1 October to help importers perform and report these calculations," the EU said in a statement.

During this phase, EU importers will be required to report the greenhouse gas emissions associated with the production of imported commodities, such as iron and steel, aluminium, cement, electricity, fertilizers, and hydrogen.

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Starting in 2026, importers will need to purchase certificates to offset these CO2 emissions. This will bring them to a level playing field compared to EU industries that must acquire permits from the EU carbon market to mitigate their pollution.

"It will equalise the price of carbon between domestic products and imports. This will ensure that the EU's climate policies are not undermined by production relocating to countries with less ambitious green standards or by the replacement of EU products by more carbon-intensive imports," the EU said in a statement.

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As per the EU, CBAM is a WTO-compatible measure that will inspire global industries to watch out for greener and more sustainable technologies.

EU added, "Reviews of the CBAM's functioning and product scope during its transitional phase will be concluded before the start of the definitive period, as well as the feasibility of extending the scope of CBAM to other goods produced in ETS sectors."

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