The European Union will introduce the world “first of its kind” carbon tax on certain goods imported into the EU from next October.
In an all night “horse trading” session between EU member states and the European Parliament, an agreement was reached to introduce a carbon border adjustment mechanism (CBAM) on imports of iron and steel, hydrogen, cement, fertilisers, aluminium and electricity to support European industries as they decarbonise.
As with any “horse trading” session, imported hydrogen was not part of the original EU proposal, but EU lawmakers pressed for and succeeded the have imported hydrogen added to the list.
The CBAM agreement is the first of its kind and has been designed to comply fully with World Trade Organisation (WTO) rules. The new bill is still provisional as the details are finalised between the EU member states and other EU institutions. The carbon tax will come into force on a trial basis from the 1st of October 2023, with a transition period where the importers will need to report but will not be taxed.
Importers that bring the listed goods into the EU will be required to pay for their embedded CO2 emissions—equalising the same CO2 costs between EU and non-EU producers and preventing undercutting European industries with cheaper goods made in countries with weaker environmental rules.
After the deal, rapporteur Mohammed Chahim said: “CBAM will be a crucial pillar of European climate policies. It is one of the only mechanisms we have to incentivise our trading partners to decarbonise their manufacturing industry. On top of this, it is an alternative to our current carbon leakage measures, which will allow us to apply the polluter pays principle to our own industry. A win-win situation.”
