As we rang in the new year, the EU’s Carbon Border Adjustment Mechanism (CBAM) saw major changes. Up to this point, the law has only required certain importers to report on embedded carbon in their imports. Now the embedded carbon will be tracked, and in 2027, importers will be required to buy CBAM certificates to cover their 2026 imports. In addition to phasing in, the European Commission also proposed amendments to CBAM that will strengthen the law, expanding its reach further down the value chains of importers. CarbonCredits.com reports:
“Alongside the review, the Commission has proposed changes to strengthen and expand CBAM. One major proposal targets goods further downstream in global value chains. This means products that are not raw materials but contain high shares (79%) of steel and aluminium. These could include machinery, automotive parts, household appliances, and construction equipment. The Commission’s proposal would add around 180 new product categories to the list, potentially covering thousands of importers.”
It’s interesting to see the Commission propose an expansion to CBAM after the law was “simplified” last year, excluding 90% of companies. CBAM is designed to place the EU economy on equal footing with global competitors. The EU has an emissions trading system (ETS), which effectively acts as a tax on carbon emissions for certain industries. CBAM requires importers to pay a similar tax, thus eliminating the competitive advantage exporting countries may gain by failing to implement an ETS. The proposed expansion appears aimed at going deeper into the targeted industries, rather than wider to the broader economy. This would close loopholes and make it more difficult for foreign producers in covered industries to skirt the new tax.
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