The Council of the European Union reached a provisional and conditional agreement on the Carbon Border Adjustment Mechanism (CBAM) regulation. CBAM was proposed by the European Commission („EC”) in July 2021 to prevent the risk of carbon leakage. The products of the following sectors will be covered by CBAM; iron and steel, cement, fertilizers, aluminium, electricity, and hydrogen, as well as some precursors and a limited number of downstream products. Indirect emissions would also be included in the regulation in a well-circumscribed manner.
CBAM would apply essentially with reporting obligations from October 2023 onwards and would be phased in gradually in parallel to a phasing out of the free allowance under the revised EU emissions trading system (EU ETS). This will be formally adopted once the elements relevant to CBAM, namely the free allowance under the EU ETS, are resolved.