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The author is EU commissioner for the economy
Another summer of catastrophic fires and floods has provided further grim evidence of the worsening climate collapse our world is facing. Policymakers around the globe know that combating this phenomenon requires hard choices. Yet the biggest risk we face is that of doing too little, too late.
The EU has long been at the forefront of global efforts to fight climate change. In particular, we have been pioneers when it comes to carbon pricing: the EU Emissions Trading System (ETS) has been operating for close to two decades. This Sunday, we will begin to implement another groundbreaking measure that will over time extend the same pricing principles to all carbon-intensive products sold on the EU market, wherever in the world they originate.
The new carbon border adjustment mechanism (CBAM) has two goals: to encourage industry worldwide to embrace greener technologies; and to prevent so-called carbon leakage, or the relocation of production outside our borders to countries with lower environmental standards.
Fully compatible with World Trade Organization rules, CBAM is not about trade protection, but about protecting the EU’s climate ambition.
The EU is introducing CBAM in a gradual and predictable manner. For a transitional phase running until the end of 2025, EU importers of CBAM goods — steel and iron, aluminium, cement, hydrogen, fertilisers and electricity — from non-EU countries will only need to provide data on the carbon intensity of their products.
Then, starting in 2026, companies will begin buying and surrendering CBAM certificates based on the carbon footprint of their imports. Payments under CBAM will be phased in over a decade until 2035. For the sectors concerned, this will occur in parallel with the planned phasing out of the free allowances currently available under the ETS, ensuring equal treatment between non-EU and EU producers.
The European Commission has provided extensive guidance to industry on how CBAM will work during the transition phase. We will maintain a close and constructive dialogue with businesses, other stakeholders and trading partners during this period.
In mid-2025 we will draw the lessons of this period and use the information gathered to refine the framework before CBAM payments begin, looking in particular at its impact on EU exports and its likely extension to more sectors. Through the EU Innovation Fund, bolstered by the phasing out of ETS free allowances, we will also provide financial support to help EU companies in the sectors covered by CBAM in their decarbonisation efforts.
I want to reassure non-EU companies that we will never ask more of them than we do of EU producers. Carbon prices already paid in the country of production can be deducted from the CBAM payment. There will be no bill due, should that carbon price be higher than the EU ETS price.
We have seen that our plans to introduce CBAM have already been a catalyst for countries in the G20 and beyond to step up their own work on carbon pricing. This is good news for our beleaguered planet. We will remain fully engaged in discussions in this area, both bilaterally and multilaterally — in the OECD, the G7’s Climate Club, the WTO and the UN Framework Convention on Climate Change. We also welcome the fact that governments and industry worldwide are finding new and innovative ways to decarbonise. An inherent feature of CBAM is that any effective decarbonisation effort will reduce charges on imports.
As this important new climate measure takes effect, we are committed to working hand in glove with businesses in the EU and beyond, as well as with governments around the world, to make it work. Because the battle to save our planet from disaster will be won globally, or not at all.