EU CBAM: What’s Next?

The EU Carbon Border Adjustment Mechanism (CBAM) represents a pivotal shift in global environmental regulation, aiming to level the playing field for European producers by imposing a carbon price on imports of certain goods from outside the EU. This measure seeks to prevent carbon leakage, where companies might move production to countries with less stringent climate policies, undermining the EU's ambitious climate goals. As the EU moves forward with the implementation of CBAM, several key developments are anticipated. Firstly, a gradual phase-in is expected, beginning with a transition period to allow businesses and trading partners to adapt. The mechanism will initially cover a select group of high carbon-emission industries such as steel, cement, and electricity. Over time, it is anticipated that the scope of goods subject to CBAM will expand, encompassing a broader range of products. Additionally, the EU is engaging in diplomatic efforts to address concerns from trading partners and to ensure compliance with World Trade Organization rules. The success of the CBAM will depend on its ability to encourage cleaner industrial practices globally without triggering trade disputes. It represents a significant step towards aligning global trade practices with the urgent need for climate action.