Countries are developing their Carbon Border Adjustment Mechanism systems

 

 

 

 

In May 2023, a Regulation of the European Parliament and of the Council of the European Union was adopted, which establishes the Carbon Border Adjustment Mechanism (CBAM). This is the most prominent financial instrument in global carbon policy, and it has already started to spread actively outside the EU. 

 

Thus, on 1 October 2023, it was in the EU that the first step of the transition to CBAM started. The rules for implementing the first step will be in force until the end of 2025.

 

The Carbon Border Adjustment Mechanism envisages the gradual introduction of duties on CO2 emissions for goods imported into the EU by foreign countries. This involves imposing a carbon tax on goods whose production emits large amounts of greenhouse gases into the atmosphere (e.g., cement, iron, steel, fertilisers, aluminium or hydrogen). The mechanism covers producers who do not have special “green” certificates to prove the low-carbon “origin” of their products. 

 

However, in the first phase, i.e., until the end of 2025, there will be no additional duties for importers. During the transition period, European companies will only have to report on emissions associated with imported products. It is planned that the data obtained from the reports will help to finalise the system and move to the main stage of CBAM implementation. Thus, payments for imported products with a high carbon footprint are planned to be introduced only from the beginning of 2026. 

 

Today, the UK has also started developing its own national CBAM, which will be a response to the EU’s CBAM. China is also working on developing its own system. According to the World Bank, Taiwan passed a law to introduce CBAM for carbon imports as early as January 2023. A number of Russia – friendly countries are also expected to introduce their own CBAMs, which will fully or partially overlap in functionality with the EU CBAM. Active development of the national CBAM will allow Russia to achieve several independent goals at once. 

Firstly, it is to counter climate change by tackling carbon leakage (including tackling the economic drivers of production). This will reduce overall global emissions, and thus potentially reduce greenhouse gas emissions. 

 

Secondly, an economic instrument will be created to protect domestic manufacturers of products exported to jurisdictions with a working CBAM from costs incurred by them under a foreign CBAM. 

 

The adoption of CBAM is usually accompanied by a legal formalisation of the national concept of carbon price – this is an integral part of the regulation and forms its economic component. This formalisation puts an end to the many debates about carbon pricing instruments and will indeed shape the carbon price. For example, in the EU, it was within the Regulation that the legal definition of the carbon price first appeared and formalised all its elements that are taken into account. European regulators not only opted for direct carbon pricing instruments, but also confirmed the practical value of formalising such an instrument as a carbon price in the context of the existence of CBAM, rather than separately from it. 

 

The practical value of the carbon pricing approach arises, for example, if it is applied to the following aspects of economic relations: 

 

• foreign dimension – to reduce the financial burden of national manufacturers under the foreign CBAM, taking into account the national carbon price they pay; 

• national dimension – to create a financial baseline, including for the purposes of calculating the financial burden under the national CBAM. 

 

Thus, in order to achieve the most meaningful effect and outcome from the operation of CBAM and the carbon price, the development and formalisation of each should not proceed in isolation from each other. 

 

The CIS Electric Power Council has recently prepared a draft roadmap for harmonising green instruments for low-carbon energy development, among which is also the launch of the Carbon Border Adjustment Mechanism between the countries.

 

 

 

Unsplash / Anne Nygard / Markus Winkler