CBAM - TX

Carbon Border Adjustment Mechanism (CBAM)

The Carbon Border Adjustment Mechanism (CBAM) is an EU regulation designed to address carbon leakage by placing a carbon cost on imported goods from carbon-intensive industries. It aims to ensure that products imported into the EU are subject to the same carbon costs as those produced within the EU, thereby leveling the playing field and encouraging global decarbonization.

Implementation Phases:

Transitional Phase (2023–2025): Importers of carbon-intensive goods are required to report embedded emissions on a quarterly basis. No financial transactions (buying CBAM certificates) are required yet.

Full Implementation (from 2026): Importers must buy CBAM certificates corresponding to the carbon emissions of imported goods. The certificate price will reflect the EU ETS carbon price.

Industries Covered (April 2025):

CBAM currently covers high-emission upstream industries, particularly those involved in the production and primary processing of carbon-intensive materials:

Iron and Steel: Includes raw steel production. Examples: Tata Steel, ArcelorMittal, Thyssenkrupp.
Cement: Production of clinker and cement. Examples: Heidelberg Materials, LafargeHolcim.
Aluminum: Includes smelting and primary aluminum production. Examples: Norsk Hydro, Alcoa.
Fertilizers: Primarily nitrogen-based fertilizers. Examples: Yara International, Borealis.
Electricity: Production from fossil fuel sources. Examples: RWE, EDF, Enel.
Hydrogen: Industrial hydrogen production. Examples: Air Liquide, Linde.

Industries Not Covered (April 2025):

CBAM does not currently cover downstream manufacturers or finished goods, including:

Automotive brands: Volkswagen, BMW, Mercedes-Benz, Renault, Stellantis.
Machinery manufacturers: Siemens, Caterpillar, John Deere.
Consumer goods: Appliances and electronics.
Construction companies: Even if they use cement or steel, their end products are not covered.

Why This Distinction Exists:

CBAM focuses on upstream emissions where carbon-intensive processing occurs, rather than downstream industries that purchase and utilize these materials. While the cost of raw materials may increase for downstream manufacturers due to CBAM, they are not directly required to buy CBAM certificates at this stage.

Future Outlook:

The EU may expand the scope of CBAM to include more products and industries, depending on climate policy developments. Companies not currently covered should monitor changes to stay prepared for potential inclusion.