Phase application of the Carbon Border Adjustment Mechanism has started

Implementation of the Carbon Border Adjustment Mechanism (CBAM) in the EU began in its transitional phase as of 1 October 2023. The CBAM is a key tool of the European Union in the fight against “carbon leakage”, i.e., equalization of prices of carbon dioxide emissions within and outside their borders. It is actually the introduction of a cross-border tax on carbon dioxide emissions for certain types of goods imported from countries that have not yet established a CO2 emission taxation mechanism, which is defined within the EU borders by the Emission Trading System (ETS) Directive.

In this way, the European Union seeks to ensure that its climate policies will not be undermined by moving production outside the EU to countries with less ambitious climate standards. By setting a fair price for CO2 emissions on imported products with high greenhouse gas (GHG) emissions, the EU also preserves the competitiveness of its products so that domestic products are not replaced by imported ones.

In the transitional phase, CBAM will apply to imports of products into the EU from the cement, iron and steel, aluminium, fertilisers, electricity and hydrogen industries. Importers of these goods in the European Union will be required to report on the quantity of imported goods and on direct and indirect GHG emissions, without incurring financial obligations. Importers will have to submit the first report by 31 January 2024 for the last quarter of 2023.

The EU trading partners from Serbia will be obliged to calculate their GHG emissions and report on them in the transitional period, without payment obligation. The gradual introduction of CBAM is coordinated with gradually ceasing the free allocation of allowances within the EU Emissions Trading System (EU ETS). These two mechanisms have been harmonised to comply with World Trade Organisation (WTO) competition rules.

The EU will introduce payment to importers within the framework of CBAM in 2026. From 1 January 2026, importers will be required to buy appropriate number of CBAM certificates corresponding to GHG emissions embedded in imported goods subject to CBAM. The price of the certificate will be defined by the weekly average auction costs of emissions allowances under the ETS.

It is clear that CBAM will bring financial expenses to Serbian companies exporting to the EU and belong to the mentioned sectors of industry, consequently impacting their ability to export goods. The only way to avoid these costs is by reducing GHG emissions through investments in green, low-carbon technologies that can be supported through the introduction of a carbon pricing system in Serbia that is compatible with the EU ETS. The DSIP for the EU ETS Directive, that is being developed as part of the IED Serbia project, will include the impact of this mechanism on the economy, as well as and the measures needed to mitigate that impact.

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