Introduction to Carbon Border Adjustment Mechanism
The European Union’s Carbon Border Adjustment Mechanism (CBAM) is a significant initiative aimed at reducing greenhouse gas emissions by 2030 and 2050 and addressing climate change in countries exporting to the EU. These countries can implement similar carbon taxes in their jurisdictions, allowing them to be partially or fully exempt from CBAM obligations.
History and Goals
Since 2005, European producers have been paying for carbon emissions through the EU Emissions Trading System (EU ETS). To maintain the competitiveness of export goods, many of them have been granted free emission allowances.
CBAM will be introduced in stages, starting with a limited number of goods to test its effectiveness and global impact. Gradually, CBAM will cover more goods and sectors, and European producers will lose their right to free allowances, forcing them and importers to pay the full price for carbon emissions.
Stakeholder Consultations
Consultations began in 2014, addressing carbon leakage issues post-2020. Carbon leakage occurs when companies move carbon-intensive production abroad due to high carbon costs in the EU. These consultations revealed that existing measures did not sufficiently promote innovation and emission reductions.
EU Green Deal and Further Steps
In December 2019, as part of the EU Green Deal, the introduction of CBAM was proposed. In 2020, public consultations on CBAM implementation options took place. Relevant regulations were adopted between 2021 and 2023.
Transition Period and Reporting
From October 1, 2023, to December 31, 2025, exporting companies must report the carbon footprint of their products (cement, electricity, fertilizers, iron and steel, aluminum, hydrogen) quarterly. Exceptions apply to shipments valued at no more than €150 and goods in passengers’ personal luggage. Importers must register as authorized CBAM declarants and report emissions. CBAM certificates will not be required, and no financial compensation will be paid until the end of 2025.
Launch
From January 1, 2026, the final implementation phase of the mechanism will begin. Import of goods will be allowed only by authorized declarants who must purchase certificates for the imported products.
Expansion
By 2030, CBAM is planned to cover all sectors included in the EU Emissions Trading System, including oil refining, mining, all metals production, pulp and paper, glass and ceramics, acids and organic chemicals, aviation, and shipping. Full implementation of the system is expected by 2034.
Certificate Cost
The cost of a CBAM certificate will be directly linked to the price of EU Emissions Trading System allowances. The certificate price will be calculated weekly based on the average auction price of EU ETS allowances. Importers will be required to declare emissions associated with the imported goods and purchase the corresponding number of certificates. The amount paid as a carbon tax in the exporting country can be deducted from the CBAM certificate cost.
Conclusions
Carbon Border Adjustment Mechanism is aimed at reducing the carbon intensity of production both within the EU and in exporting countries. To minimize costs when exporting products to the European Union, the Republic of Moldova is modernizing its national legislation, creating its own quota system by 2026.