The Carbon Border Adjustment Mechanism (CBAM) is a pivotal policy introduced by the European Union (EU) to address the issue of carbon leakage and promote global climate action. As the EU intensifies its climate ambitions, CBAM aims to ensure that imported goods are subject to the same carbon costs as those produced within the EU, thereby leveling the playing field for European businesses and encouraging cleaner industrial practices worldwide.

During the transitional phase (2023-2025), importers must report the greenhouse gas emissions embedded in their imports without the need to buy certificates. This phase serves as a pilot period to refine the methodology and gather data. From 2026 on wards, importers will need to surrender certificates corresponding to the emissions of their imported goods.

The primary objective of CBAM is to prevent carbon leakage and ensure that EU climate policies are not undermined by imports from countries with lower environmental standards. By putting a fair price on carbon emissions, CBAM incentives cleaner production methods globally and supports the EU’s broader climate goals.
To ensure compliance, the EU has established a robust framework for reporting and verification. Importers must register with national authorities and report their emissions data, which will be verified by independent third parties. This transparency and accountability are crucial for the effectiveness of CBAM.
 
CBAM is not just a regional policy but has significant global implications:

• It encourages other countries to adopt similar carbon pricing mechanisms
• Aligns international trade with climate objectives.
• Countries exporting to the EU will need to adapt their production processes to meet the new standards, promoting a global shift towards sustainable practices.