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Introduction to the CBAM EU carbon border adjustment mechanism
Detailed introduction to the Carbon Border Adjustment Mechanism (CBAM)
I. Background and purpose of CBAM
1. The origin of CBAM
The Carbon Border Adjustment Mechanism (CBAM) is an innovative policy tool launched by the European Union to combat global climate change. The mechanism was first proposed by the European Commission in 2020 as part of the European Green Deal, with the aim of promoting the EU's goal of climate neutrality by 2050. CBAM aims to address carbon leakage in global trade and ensure that strict carbon emission standards implemented within the EU are not invalidated due to international trade.
2. Design Purpose of CBAM
The main design purpose of CBAM is to ensure that imported products have the same carbon emission cost burden as products produced within the EU, thereby creating a level playing field. By imposing the same carbon price on imported goods as the EU Carbon Emissions Trading System (ETS), CBAM aims to avoid industry migration due to differences in carbon policies in different countries, which may increase global carbon emissions.
II.Implementation and Impact of CBAM
1. How CBAM is Implemented
CBAM implementation involves assessing and pricing the carbon emissions of specific imported goods, such as steel, cement, aluminum, fertilizers, and electricity. Importers are required to purchase corresponding carbon certificates based on the carbon emissions of their goods, and this mechanism will be gradually implemented starting in 2023 and fully effective in 2026. CBAM relies on a sophisticated set of monitoring, reporting, and verification (MRV) systems to ensure data accuracy and transparency.
2. Impact of CBAM on Global Trade
The implementation of CBAM could reshape global supply chains and trade patterns. For those countries that rely on carbon-intensive products exported to the EU, CBAM may prompt these countries to strengthen their own carbon reduction measures. In addition, CBAM may also stimulate the establishment of a global carbon price mechanism to promote the reduction of global carbon emissions. However, this has also sparked some international trade disputes, especially in countries and regions that are skeptical of carbon price mechanisms.
Through the above detailed analysis, it can be seen that CBAM is not only part of the EU's internal policy adjustment, but also a climate policy tool with potential global impact, and its long-term effects need to be further observed and evaluated.
III. CBAM Transition Period and Formal Implementation Timeline
1. Transition Period Arrangements
The transition period for CBAM is a critical stage for testing and adjusting the institutional framework, ensuring that all technical and legal challenges are addressed before full implementation. According to the EU's plan, the transition period for CBAM begins in 2023 and will last until the end of 2025. During this three-year transition period, the EU will not immediately impose a carbon tax on imported goods, but will focus on establishing the necessary monitoring, reporting and verification (MRV) system. Importers are required to report data based on the carbon emissions of their products, but they do not need to pay for these emissions for the time being. The purpose of the transition period is to adapt the EU and importing countries to the new institutional requirements. During this period, the EU will closely monitor and evaluate the operation of CBAM and make adjustments as needed. This also provides time for global exporters to evaluate and adjust their production and supply chain strategies in response to the imminent carbon costs of implementation.
2. Implementation Timeline for Formal Carbon Tax Collection
After the transition period ends, CBAM will officially take effect on January 1, 2026, when carbon taxes will begin to be levied on products within the scope of the scope. Starting in 2026, carbon-intensive products imported into the EU will need to purchase carbon certificates, the price of which will be linked to a carbon price within the EU Emissions Trading System (EU ETS). The price of these certificates will be reflected in the cost per ton of CO2 emissions, and importers must purchase enough certificates to cover their carbon emissions based on a report of their product's carbon footprint.
The start of the official implementation phase marks a significant shift in the EU's foreign trade and environmental policy. The EU hopes to promote global carbon reduction efforts, promote production efficiency and innovation, and further promote climate action on a global scale through CBAM. At the same time, this may also cause international discussions and controversies about carbon pricing fairness and trade protectionism.
This timeline and implementation strategy demonstrate the EU's commitment to advancing its climate policy goals in a balanced and progressive manner, while providing sufficient time for global economies to adapt to the new rules. Through this strategy, the EU hopes to maximize the environmental benefits of CBAM policies while reducing its potential negative impact on international trade.
CBAM transition period and official implementation timeline/data source/Bu-Jhen low-carbon strategy
IV.How does the ETS system relate to CBAM? The EU's Carbon Emissions Trading System (ETS) and the Carbon Border Adjustment Mechanism (CBAM) are two independent policy tools, but together they form the EU's broader climate policy framework, aiming to reduce carbon emissions and promote the transition to a sustainable economy. The following is the relationship and interaction between the two:
1. Goal Alignment
The main goals of ETS and CBAM are to reduce carbon emissions and prevent climate change. ETS achieves this goal by setting emission caps and allowing the market to trade emission rights, while CBAM ensures that imported products are costly fair to products produced within the EU, avoiding carbon leakage, where companies move production to countries with lower carbon costs.
2. Consistency of carbon prices
CBAM is designed based on ETS's carbon price. In CBAM, importers must purchase carbon certificates to offset carbon emissions generated when their products are sold in the EU market. The price of these certificates is linked to the carbon price in the ETS market. This design ensures a level playing field for both EU and non-EU producers and allows the message of carbon prices to reach global producers.
3. Complementary and enhanced role
CBAM is a supplement and enhancement to the ETS. ETS covers carbon emissions within the EU, while CBAM extends to products outside the EU. This avoids carbon reduction efforts within the EU being weakened by uneven competition in the global market. For example, if there is only ETS and no CBAM, producers within the EU may be disadvantaged by increased carbon costs, while imports from countries without carbon emission restrictions do not bear the same costs.
4. Promoting a global carbon price mechanism
Through CBAM, the EU is not only promoting carbon reductions within itself but also globally. This can incentivize other countries to implement similar carbon pricing mechanisms to avoid uncompetitive exports in the EU market. In the long run, this will help form a more balanced and broad global carbon market. In summary, ETS and CBAM are two mechanisms that complement each other to support the EU in achieving its climate goals and promoting global climate action. Through these two tools, the EU hopes to promote carbon emission reduction and environmental protection efforts on a global scale.
The following is a table to present the "relationship between ETS system and CBAM":
The relationship between ETS system and CBAM/data source/Bu-Jhen low-carbon strategy
V.What is the "default value" for CBAM declaration?
1. The Concept of CBAM Defaults
In the Carbon Border Adjustment Mechanism (CBAM), "default values" are a method used to calculate the carbon emissions of specific imported goods. This value is based on a predetermined set of standards or average data, representing the average carbon emissions of a particular product or production process in the absence of specific actual emissions data. The default value is designed primarily to solve the calculation problem when importers cannot provide detailed product carbon footprint data, thereby ensuring that all imported goods are subject to CBAM carbon tax on a fair basis.
2. Setting Principles for Defaults:
Setting defaults involves extensive industry data collection and analysis. These data sources include industry reports, academic research, and public databases, among others. The EU compares the average carbon emission levels of industries in various countries and regions and calculates presets based on these data. Under the framework of CBAM, these default values need to be regularly updated and corrected to maintain their accuracy and timeliness.
3. The importance of default values
Default values play a crucial role in CBAM policies, ensuring the operability of the policy and the fairness of its implementation. For those products that find it difficult to accurately calculate carbon emissions, preset values provide a viable solution, allowing all products to be subject to carbon taxes according to certain standards. Additionally, the default values help reduce administrative and regulatory burdens, making CBAM implementation more efficient and widespread.
4. Calculation Method of Preset Values
The calculation of preset values typically considers multiple factors, including production technology, energy efficiency, and raw material sources. For example, in the steel industry, the calculation of the default value takes into account factors such as the type of furnace used (such as blast furnace or electric furnace), the source of the iron ore, and the type of coal or natural gas used. These factors collectively affect the total carbon footprint of a product, so it must be carefully considered when setting default values.
5. Relationship between
Default Values and Actual Emissions In practical applications, default values are usually set above the industry average emission level to incentivize companies to take emission reduction measures to meet or fall below this preset emission level. If importers can provide actual emissions data lower than the default value, they can calculate carbon taxes based on the actual data, which is an incentive for companies that have already taken effective emission reduction measures. Conversely, if specific data cannot be provided, a carbon tax must be paid at a higher default value.
6. The Role of Defaults in International Trade
The setting of defaults not only affects importers in the EU but also has a significant impact on global producers. It forces global supply chains to focus on carbon emissions, driving carbon efficiency improvements in international trade. This impact is particularly significant in countries and industries that are highly dependent on EU exports, which need to adjust their production processes to meet or fall short of CBAM's default emission standards, thereby reducing the burden on carbon taxes.
7. Future trends and adjustments to presets
As global awareness of climate change deepens and technology advances, the settings of presets will continue to be updated and adjusted. The EU may set stricter default values based on the latest scientific research and technological developments to promote the development and application of more efficient and low-carbon production technologies.
In summary, the default value in CBAM is a key policy tool that not only ensures the fairness and feasibility of policies but also serves as an important lever to drive global emission reduction efforts. By reasonably setting and using default values, the EU can effectively extend its carbon emission reduction targets globally, promoting industrial upgrading and sustainable development.
CBAM declaration default value/data source/Bu-Jhen low carbon strategy
VI. CBAM reporting obligor
1. Definition of CBAM Reporting Obligors
Under the framework of the Carbon Border Adjustment Mechanism (CBAM), reporting obligors mainly refer to companies or individuals that need to declare carbon emissions from their imported products to the EU. These obligors are usually exporters, importers or agents on behalf of non-EU countries importing into the EU market.
2. Who must fulfill the reporting obligation
The reporting obligor of CBAM includes the following categories of entities:
a. EU importers ,
which are the most direct obligors, usually refer to companies that import covered goods directly from non-EU countries into the EU. Importers are responsible for calculating and declaring the carbon emissions of these goods in accordance with regulations.
b. Non-EU exporters
In some cases, non-EU exporters may need to fulfill their reporting obligations, either directly or through their agents in the EU, especially if they wish to demonstrate that the actual carbon emissions of their products are below the default value for potential tax deductions.
c. Authorized Representative
For non-EU companies that do not have an entity established in the EU, they may need to appoint an authorized representative in the EU to fulfill CBAM's reporting obligations. This type of representative is usually an EU company with legal operating qualifications to complete the necessary carbon emission declaration work on behalf of non-EU exporters.
3. Specific requirements for reporting obligations
CBAM reporting obligors must submit detailed product carbon emission reports in accordance with EU regulations. This includes:
a. Carbon emission calculation
obligors are required to calculate the carbon emissions of imported products based on the methodology provided by the EU, which may involve presets or calculations based on data from the actual production process of the product.
b. Purchase carbon certificates
Once officially implemented, the reporting obligor needs to purchase corresponding carbon certificates based on the declared carbon emissions to cover the carbon emissions of their products when entering the EU market.
c. Regular Updates and Reports
In addition to the initial filing, CBAM reporting obligors also need to regularly update and resubmit the carbon emission data of their products to ensure the accuracy and up-to-date information.
4. Purpose of CBAM Reporting
By establishing clear reporting obligors and their responsibilities, CBAM aims to ensure that all goods entering the EU market meet certain carbon emission standards, thereby promoting global carbon reduction efforts and promoting global climate action. This not only helps the EU achieve its climate goals but also prompts global supply chains to pay more attention to and invest in low-carbon technologies and solutions.
CBAM Reporting Obligor/Source/Bu-Jhen Low Carbon Strategy
VII.Industries subject to CBAM declaration, as well as their deadlines and timelines
1. Overview of Industries Under Management:
The Carbon Border Adjustment Mechanism (CBAM) aims to cover key industries that the EU considers to have high carbon emissions on a global scale and are prone to carbon leakage. These industries mainly include:
Steel industry: Due to its high energy consumption and high carbon emissions in the production process, the steel industry is one of the main targets of CBAM.
Cement Industry: Cement production is another high-carbon emission industry, especially during the calcination phase of the manufacturing process.
Aluminum products: The smelting process of aluminum consumes a lot of energy, so it is listed as a pipe industry under CBAM.
Fertilizers: Greenhouse gases such as nitrogen oxides released during the production of chemical fertilizers also make them a key regulated industry under CBAM.
Electricity: Carbon emissions from cross-border electricity trading are also included in the scope of CBAM. These industries were selected mainly because of their significant global carbon emissions and production conditions in countries outside the EU that may differ significantly from those in the EU, which can easily lead to carbon leakage.
2. Payment timeline and duration
The implementation of CBAM is divided into two stages: transition period and formal implementation, the specific timeline is as follows:
CBAM management schedule and deadline/data source/Bu-Jhen low-carbon strategy
The formal implementation phase will make necessary adjustments based on the monitoring results of the transition period to ensure that CBAM can be implemented effectively and equitably, taking into account the specific circumstances of each member country and relevant industry.
3. Strategies and Objectives of CBAM
The main strategy of CBAM is to reduce carbon emissions globally by directly charging for carbon emissions and incentivizing industries in non-EU countries to adopt more environmentally friendly production technologies. This policy not only helps the EU achieve its climate goals, but also promotes international cooperation and technological progress in global climate governance. Through strict regulation of these core industries, CBAM aims to establish a fairer and environmentally responsible international trading system and promote the transformation of the global economy towards more sustainable development.
VIII.The Impact of CBAM on Corporate Exports
1. Increased Cost Pressure
The implementation of CBAM means that non-EU companies exporting to the EU will face additional cost pressure on their products. Companies need to pay carbon certificate fees equivalent to the carbon emissions of their products, which directly increases the export cost of products. This cost pressure is particularly significant in industries that rely on energy-intensive production processes, such as steel, cement, and chemicals.
2. Promoting Technological Innovation and Green Transformation
In the face of increased cost pressures, companies may seek more efficient and low-carbon production technologies to reduce carbon emissions, thereby reducing the purchase cost of carbon certificates. This pressure can prompt companies to invest more in R&D, promote technological innovation, and gradually shift to more environmentally friendly production models. In the long run, this will help companies enhance their competitiveness in the global market, especially in today's world where more consumers and governments are paying attention to environmental protection.
3. Impact on the competitive landscape of the international market
CBAM may reshape the competitive landscape of the international market. If companies can reduce the carbon footprint of their products, they may gain a competitive advantage in the face of carbon pricing mechanisms in the EU market. In addition, companies from countries with lower carbon prices or no carbon price mechanisms may encounter more challenges in the EU market, which may prompt the restructuring of global supply chains.
4. Increased Administrative and Compliance Burden
CBAM requires companies to not only calculate and report the carbon emissions of their products but also manage administrative tasks related to carbon certificate purchases. This increases compliance costs and operational complexity for businesses. These requirements can be particularly challenging for SMEs, as they may lack the resources to handle these complex issues.
5. Stimulating Demand for Green Products
With the implementation of CBAM, the carbon footprint of products will be a significant factor affecting their market appeal. This could stimulate demand for low-carbon or carbon-free products, especially in markets like the European Union, where environmental requirements are stringent. Businesses may find that investing in green products and services not only meets market demand but also serves as a market differentiation strategy.
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