The EU’s Carbon Border Adjustment Mechanism (CBAM) is designed to keep imports in EU economy competitive with domestic businesses. The EU’s Emissions Trading System (ETS) can incur substantial costs on carbon-intensive sectors. However, companies operating outside the EU are not subject to the ETS, giving them a competitive advantage. That’s where CBAM comes in. CBAM requires importers to pay a tax on the embedded carbon in their products. The system is far from perfect, though. There are a number of ways that CBAM can be circumvented or exploited. That’s why the EU is working to update the law and expand its scope. The EU Council recently announced its position on CBAM revisions, stating in a press release:
“EU-made products using a significant proportion of CBAM goods in their manufacture, in particular iron, steel and aluminium, could contribute to an increase of emissions outside the EU and replace similar EU products that are subject to the emissions trading scheme.
To prevent this, the updated legislation extends CBAM’s scope to a selection of such downstream products. In its agreed position, the Council has refined the list of new products to which the CBAM would be applied and mandates the Commission to conduct an annual review on future downstream products that could be included.”
The Council’s position will serve as a starting point for negotiations between it and the EU Parliament. Parliament has yet to adopt a negotiating position on the amendments, but is expected to in the near future.
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