Carbon Tax at EU Borders

Carbon Border Adjustment Mechanism (CBAM)

CBAM is a new measure intended to meet the EU’s goal of reducing emissions by at least 55% by 2030 (compared to 1990) and to become the first climate-neutral continent by 2050.

When Will it Apply?

CBAM will be introduced gradually and will initially only apply to goods with the greatest risk of carbon leakage. CBAM will be introduced in multiple phases. In the first phase, there will only be a reporting obligation for importers to report embedded emissions with regard to their goods without paying financial compensation. The first phase will last until the end of 2025. From 2026, importers will be obliged to pay financial compensation and the full CBAM is expected to be gradually launched starting in 2026. 

  • From 2023 – introduction of a reporting obligation to facilitate problem-free implementation and dialogue with third countries.
  • From 2026 – gradual introduction of CBAM – importers will start paying financial compensation.
  • By 2035 – CBAM will gradually replace the existing EU mechanisms that address the carbon leakage risk, in particular the free-of-charge allocation of EU ETS allowances (the “EU Emissions Trading System”).
Which Commodities Will Be Affected? 

CBAM will initially apply to the products in the following industries: production of cement, aluminium, fertilisers, electricity, iron and steel industry.

How Will it Work in Practice? 

Importers will be obliged to annually declare the volume of goods and the volume of embedded emissions with regard to goods imported into the EU in the previous year, and to surrender the corresponding amount of CBAM certificates. When a producer from a non-EU country is able to demonstrate they have already paid the price for the embedded carbon with regard to the production of imported goods in a third country, the corresponding expenses will be fully deductible by the EU importer. CBAM will work in parallel with the EU ETS system, which will complement its functioning in relation to imported goods.

What is the Current Phase of CBAM? 

In March 2022, the EU Council reached agreement (general approach) on the Carbon Border Adjustment Mechanism (CBAM) regulation. Compared to the Commission’s original proposal, the Council increased the centralisation of CBAM management where it makes sense and contributes to greater efficiency. For example, the new register of CBAM declarants (importers) will be centralised at the EU level.

The Council also plans to introduce a minimum threshold to exempt shipments below EUR 150 from CBAM obligations. Negotiations are in progress in several areas that are closely related to CBAM, but which are not part of the draft legal text of the CBAM regulation.

What Will Be the Impact of CBAM on the EU and Slovakia?
  • It will maintain and strengthen the innovativeness and competitiveness of the EU industry.
  • It will ensure equal conditions for third-country businesses, thereby preventing the transfer of production to countries with less ambitious environmental policies. As a result, Slovakia will have the same conditions as businesses from third countries.
  • It will reinforce the EU’s leadership in the global fight against climate change.
  • It will improve climatic conditions in the EU, including Slovakia.

We will continue to monitor this topic and will inform you in due course about developments in this area and legislative processes at the European and national level. If you have any questions, please do not hesitate to contact our experts.

Date: 9. 9. 2022

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