CARBON BORDER ADJUSTMENT MECHANISM (CBAM)
Environment & Ecology
- It is part of the “Fit for 55 in 2030 package” by the European Union (EU).
- A policy tool designed to reduce carbon emissions by applying the same carbon costs to imported goods as those produced within the EU.
- Aim
- Ensure that EU climate objectives are not undermined by carbon-intensive imports.
- Encourage cleaner production practices globally.
- To reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels.
- Implementation Process
- Importers are required to declare the quantity of goods imported into the EU and their embedded greenhouse gas (GHG) emissions annually
- To offset emissions, importers must surrender a number of CBAM certificates equivalent to their emissions.
- The price of CBAM certificates is determined by the weekly average auction price of EU Emission Trading System (ETS) allowances, priced in €/tonne of CO2 emitted
- Significance
- Motivates non-EU countries to adopt stricter environmental regulations, potentially leading to reduced global carbon emissions
- It helps prevent carbon leakage by disincentivizing companies from relocating to regions with weaker environmental standards.
- Revenue generated from CBAM will support EU climate policies and can provide a model for other nations to develop their green energy initiatives.