� POLICY �
Implications of the Carbon Border Adjustment Mechanism for the Iron and Steel sector
On October 1 , 2023 , the Carbon Border Adjustment Mechanism ( CBAM ) became effective . As a measure to limit carbon leakage , the instrument complements the European Emission Trading System ( EU ETS ) by establishing a carbon price on imported goods that is equivalent to the carbon price on domestically produced goods . CBAM introduces a set of reporting and compliance obligations for importers of goods into the European Union .
By Simon Göß and Hendrik Schuldt , carboneer
Why is CBAM needed ?
In a nutshell , CBAM is a policy instrument aiming to reduce the risk of carbon leakage under the EU ETS , the largest carbon pricing scheme worldwide that covers approximately 40 % of the EU ’ s emissions . Carbon leakage refers to the phenomenon where climate policy restricts the competitiveness of domestic manufacturers compared to foreign producers that underly less stringent policies and can produce in a less expensive but environmentally more harmful way . The risk then arises that industry moves from the regulated jurisdiction to countries with lower environmental standards . Climate policy that does not manage carbon leakage could lead to the relocation of emission-intensive manufacturers abroad . Emissions would be exported instead of mitigated , and the domestic economy remains weakened .
Under the EU ETS , regulated entities , that are subject to the risk of carbon leakage , receive emission allowances free of charge conditional on their emission intensity in relation to a sectoral benchmark . This way , the competitive disadvantage of European climate policy is mitigated . The distribution of free
14 Green Steel World | Issue 9 | November 2023