In June this year, the European Parliament approved the Carbon Border Adjustment Mechanism (CBAM), which will tax imported goods with a high environmental footprint.

The measure, which will take effect gradually from January 1, 2023, will initially affect exports of a group of carbon-intensive products such as iron, steel, cement and fertilizers, and will be extended to others such as wood, paper and food.

Although subject to review by the World Trade Organization (WTO), the CBAM is part of the commitments made by the countries of the European Union to reduce their greenhouse gas (GHG) emissions by 55% by 2030 based on 1990 and to achieve carbon neutrality by 2050.

The carbon border adjustment mechanism (CBAM) is a response to the European Green Deal, which was launched in 2021 to promote a post-pandemic economic recovery in a sustainable manner and to meet climate objectives by reducing greenhouse gas emissions.

The system works in two ways: through a tax or fee; or through the obligation to pay permits or buy carbon emission reduction certificates in countries that have regulated carbon markets.

In terms of implementation, the CBAM will progress gradually. From 2023, a simplified system will be applied to selected products, where importers will have to report the emissions incorporated in their products without paying a financial adjustment. Once the system is fully operational in 2026, EU importers will have to declare annually the amount of emissions embodied in the total amount of goods they imported into the EU in the previous year, and purchase the corresponding amount of certificates.