Carbon Border Adjustment Mechanism

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The EU’s Carbon Border Adjustment Mechanism (CBAM), a key plank in the EU’s in the ‘Fit for 55’ package. It affects companies wanting to import goods produced outside the EU. They will have to purchase certificates corresponding to the emissions generated in the production of those externam goods. This levels the playing field between domestic carbon emitters, who already have to buy and surrender EU Allowances, and foreign manufacturers who, presently, don’t. A cynic would say this is also a form of tariff. An optimist would say, yes, but it is a good tariff.

The price of these certificates will reflect the average weekly price of ETS auctions.

However, CBAM certificates aren’t tradeable or bankable. This is meant to ensure they constantly reflect the evolution of the ETS price, to avoid weakening the incentives for decarbonisation between domestic and imported goods.