Carbon Border Adjustment Mechanism (CBAM)

The CBAM applies in the EU beginning 1 October 2023 and aims at equalizing the price of carbon as paid by EU manufacturers operating under the EU Emissions Trading System (EU ETS) and goods imported into the EU. The primary objective of this system is to fight against carbon leakage, in a context of strengthening EU's climate ambitions.

In a transitional period from October 2023 to December 2025, the CBAM covers industrial sectors with high carbon emissions and risk of carbon leakage: cement, iron and steel, aluminum, fertilizers, electricity and hydrogen.

For those sectors, the CBAM brings about changes for various stakeholders:

• Over the course of the transitional period, importers bear responsibility for calculating and reporting to the European Commission carbon emissions in line with EU requirements. There is no payment of financial adjustments during this period.
• From January 2026 onwards, importers will:

i) be responsible for procuring and surrendering CBAM certificates that reflect the carbon price of the embedded emissions in the covered goods that are imported into the EU; and

ii) be liable for ensuring the independent verification of emission calculations.

• The phasing-in of the CBAM in the period 2026-2034 will take place in parallel with the phasing-out of free allocations under the EU ETS.

Before the entry into force of the definitive CBAM system in 2026, the EU will conduct a review of the CBAM's functioning during its transitional period. At the same time, the product scope will be reviewed to assess the desirability of including other goods produced in sectors covered by the EU ETS in the scope of the CBAM.

How Mayer Brown Can Help

Our lawyers have a wealth of experience in advising on legal aspects of the EU ETS and the CBAM, including policy and regulatory aspects as well as implementation and monitoring strategy. Our International Trade practice is well versed in customs rules and procedures as well as anti-circumvention rules, which will be highly relevant under the CBAM. We work with experienced and reliable industry experts, that support companies on a technical side, to build and implement a tailored CBAM strategy.