The European Union’s Carbon Border Adjustment Mechanism (CBAM) is poised to transform international trade, with significant changes taking effect from 2025. CBAM is part of the EU's broader European Green Deal, aimed at reducing carbon emissions and levelling the playing field for EU industries subject to stringent environmental regulations. UK traders exporting to the EU need to prepare for these upcoming adjustments.
Key Features of CBAM
CBAM introduces a carbon pricing mechanism for imported goods in certain high-emission industries, including steel, aluminium, cement, fertilizers, and electricity. Importers in the EU will need to purchase CBAM certificates, reflecting the carbon emissions embedded in the products they bring in. The price of these certificates will mirror the cost of carbon allowances under the EU’s Emissions Trading System (ETS).
Changes in 2025
Starting January 1, 2025, the transition phase of CBAM will end, and the full mechanism will be operational. Key updates include:
Mandatory Reporting: While reporting requirements began in October 2023, they will become stricter and include verification of embedded emissions by accredited bodies. EU importers will only be able to report emissions using the EU Methodology, and default or estimates values will only be allowed for complex goods that account for less than 20% of the embedded emissions.
New Portal Section of the CBAM registry will now enable non-EU installation operators to upload and share emission date securely.
Purchase of CBAM Certificates: UK exporters to the EU will be indirectly affected, as their EU importers must buy CBAM certificates for their goods. This could influence pricing and demand for UK products.
Expanded Scope: Future extensions to CBAM’s sectoral coverage are likely, potentially affecting more industries, although this may not happen until 2030, and these will be aligned with the full range covered under the EU’s Emissions Trading Scheme (ETS).
Implications for UK Traders
UK businesses exporting goods subject to CBAM must assess their supply chains and production processes to understand their carbon footprint. Engaging with EU importers is essential to provide accurate emissions data and mitigate potential costs.
Proactively adopting decarbonization strategies and ensuring compliance with EU standards will help UK traders remain competitive. Early preparation is critical as CBAM reflects the EU's commitment to climate action, signalling a shift toward sustainability-driven trade policies.
Sources: EU, Greenly.earth, Normative
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