Staying up to date with evolving ESG regulations is more important for businesses than ever before. In this article we explore an EU regulation coming into force in Autumn 2023. It is CBAM (Carbon Border Adjustment Mechanism). Read on to understand what this could mean for your business and prepare for its implementation in October 2023.
The EU and its 27 countries are working on a new common rules to lower EU’s carbon footprint and this has a knock-on effect across the globe for any industry or business trading with the EU.
It is a key piece of EU’s ESG regulatory landscape. Carbon price on goods imported into the EU Aimed at eliminating carbon leakage. Carbon leakage occurs when companies relocate their production operations from a region with strict environmental regulations to a region with relaxed or non-existent rules. To combat this problem, the EU introduced the new regulation on carbon border adjustments, to ensure that companies that relocate to countries with lenient environmental policies pay a fair amount in carbon taxes. This legislation is set to reduce carbon leakage.
It is set to come into force in October 2023 with the implementation of quarterly reporting moving towards a requirement for CBAM certification planned sometime after January 2026.
Importers in the EU must produce quarterly reports verifying GHG emissions calculations. And purchase, surrender and declare equivalent CBAM certificates.
Those that are directly impacted include importers and exporters of CBAM goods. Those that are indirectly impacted are expected to be passed on through markets.
Therefore, a broad number of sectors are impacted by CBAM. To begin with the following sectors are included: Aerospace, Automotive, Chemicals, Consumer, Energy, Engineering & Construction, Forest, Paper & Packaging, Manufacturing, Metals & Mining, Pharma & Life Science, Power & Utilities, Retail and Technology.
It is expected that more plastic and chemical goods will be added in 2026.
Ultimately this is an important step towards reducing Europe’s carbon footprint, however it is up to all countries around the globe to work together towards achieving greater environmental sustainability. We mustn't forget that what affects one nation affects us all – and only with stronger collaboration can we hope for a greener future.
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