The Carbon Border Adjustment Mechanism – European Union’s Next Climate Action Step

As a result of ongoing discussions, the European Parliament and the Council of the European Union announced on December 13, 2022, that a provisional agreement had been reached to implement a European Union (“EU”) Carbon Border Adjustment Mechanism (“CBAM”) beginning on October 1, 2023. The CBAM, the first of its kind, is designed to mitigate the risks of “carbon leakage” — the relocation of facilities outside of the EU to circumvent emissions limits only to then ship goods back into the original EU markets — and is essentially a carbon levy applied on imports of products in the iron and steel, cement, aluminum, fertilizer, hydrogen, and electricity sectors. The CBAM is touted as a key part of the EU’s aim to achieve climate neutrality by 2050.

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