The Carbon Border Adjustment Mechanism (CBAM) is a scheme (or regulation) introduced by the European Union (EU) as a climate measure. The regulation entered into force on May 17, 2023, as a key part of the EU's Fit for 55 package. Its primary purpose is to prevent carbon leakage, which is the risk that EU companies move carbon-intensive production abroad to countries with less stringent climate policies, or that EU products are replaced by more carbon-intensive imports.
The mechanism works by requiring EU importers of certain goods to purchase CBAM certificates. The price of these certificates is calculated based on the weekly average price of allowances in the EU's existing Emissions Trading System (ETS). This effectively puts a fair price on the carbon emitted during the production of the imported goods. The initial scope of the CBAM covers imports of cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen. The CBAM is a central pillar of the EU's broader European Green Deal and is designed to mirror and complement the EU ETS.
The implementation is phased: a transitional period began on October 1, 2023, during which importers only have reporting obligations regarding the embedded emissions. The definitive system, where the financial adjustment through the purchase of certificates begins, will start on January 1, 2026. This phased introduction is the most significant recent development since the regulation's entry into force.