Beginning in 2024 the European Union will require importers of iron, steel, aluminum, cement, fertilizer, hydrogen, and electricity to report on the embedded emissions in their imports to the EU. Beginning in 2026, the EU will impose a tariff on the emissions of these imports.
The new carbon tariff, the Carbon Border Adjustment Mechanism (CBAM), is the world’s first carbon border tariff, essentially a tax on carbon. It was created with the intent to reduce carbon emissions through reporting requirements and a price on carbon emissions. The aim is to level the playing field between EU member countries subject to carbon emissions reduction requirements and manufacturers from countries that have not imposed such requirements.
Costs related to complying with CBAM are expected to drive up prices for products within the scope of the new reporting and tariff requirements. There are also concerns about the administrative capacity and efficiency of EU countries as well as the availability of accredited emissions verifiers.
For U.S. manufacturers, however, the CBAM could present new opportunities for companies that have lower levels of carbon emissions in their manufacturing processes and more experience in carbon reporting. By enhancing operational and reporting processes, innovative manufacturers can position themselves to leverage these changing EU carbon regulations.
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