🇪🇺How will the Carbon Border Adjustment Mechanism (#CBAM) affect carbon dioxide removal (#CDR)? 🇪

In its landmark passing by the European Commission, the #Fitfor55 package (https://lnkd.in/d8iSBQHU) introduced the carbon border adjustment mechanism (CBAM) that places a price on #CO2 emissions for certain imported products. But what does this pricing mechanism mean for international trade? How does CBAM work, and what countries will be affected?

CBAM will enter into its transitional phase on October 1, 2023. Here’s everything you need to know:

What is the Carbon Border Adjustment Mechanism (CBAM)?

💶The CBAM’s role is pricing CO2 emissions for certain imported products such as cement, steel, aluminum, and fertilizers, eventually covering over 50% of sectors covered by the EU Emissions Trading Scheme (#ETS).

✅Importers will have to report on the quantity and emissions (direct and indirect) of imported goods, purchase CBAM certificates, and verify embedded emissions. The CBAM is expected to prevent carbon leakage and promote a level playing field.

❌The CBAM will not apply to certain products like low-carbon electricity and goods from countries with comparable carbon pricing instruments. It also won’t apply to imports from countries which are covered by the EU ETS and countries with a domestic ETS fully linked with the EU ETS (i.e. Switzerland).

Why is this important for carbon removal (#CDR)?

🏢Sectors such as cement and steel might be incentivised to invest more in carbon capture and storage (#CCS) and CDR technologies to mitigate ETS impacts.

💸As a result, the CBAM will contribute to the reorientation of funding towards CDR in hard-to-abate sectors.

How will this affect international trade?

🌏The most affected non-EU states under CBAM are expected to be the UK, Serbia, and Mozambique, as around 80% of their CBAM exports go to the EU.

🇺🇸The US will be less affected because of limited trade in the goods that will be covered and the lower carbon intensity of U.S. production of covered goods.

❗Carbon border adjustment tariffs may affect trade with least-developed countries (LDCs). In response, the EU must provide them with technical assistance for complying with the CBAM, including financial support for decarbonization.

The CBAM is an important piece of climate legislation from the EU that can also promote international accountability. As the EU enforces carbon border adjustment tariffs, the region can effectively set an international standard for low-emissions import goods like steel. I’m excited to see the CBAM roll out and to monitor its effects on trade.

What do you think about the CBAM? What are you optimistic about? What challenges do you anticipate?