The EU’s proposed carbon border adjustment mechanism (CBAM) was adopted by the European Commission in July 2021 to complement the EU Emissions Trading System (EU ETS). The goal is to reduce greenhouse gas emissions cost-effectively in line with the Fit for 55 objectives. Products from the following sectors will be impacted: cement, aluminium, fertiliser, electricity, iron and steel.

CBAM aims to impose a CO2 charge on products entering the EU so that European industry can play on an equal footing with foreign manufacturers. According to the European Commission, the main objective of CBAM is to counteract the risk of carbon leakage, which will increase due to higher European carbon prices. In the long term, CBAM should gradually replace the free allowances distributed through the EU ETS. The issue of exports recently heated up at the European Council, where Member States agreed on the general approach on CBAM, leaving the exports issue for a later stage.

However, several European industries have expressed their concerns that the CBAM only levels the playing field for imports and that no solution has been proposed for exports leaving the EU. They also stress that there is a high risk that EU products would be replaced by more carbon-intensive products, which would be counterproductive. This leads them to call EU decision-makers to include an export mechanism in the CBAM Regulation.

Yet, as it stands today, they argue that CBAM would hinder the reach of European industry in global markets. The industry expects the EU to boost sustainable trade globally by facilitating the export of low carbon products. An example of this is the fertiliser sector, where trade flows follow the natural growing season of crops across the world. By providing nutrients for farmers to harvest high quality crops, the fertilizer sector contributes to food security in Europe and globally, while guaranteeing EU’s strategic autonomy.