European Union Carbon Border Adjustment Mechanism (CBAM): Definition, How It Works, Pros, Cons

The EU Carbon Border Adjustment Mechanism (CBAM) proposal has been a debate for a while in terms of its benefits to the community and the means of implementation. 

It is said that the mechanism could help reduce carbon leakage but has a limited impact on climate change. Climate change is considered the biggest challenge facing humanity which requires an immediate response. 

Is it possible to achieve Zero Pollution of Air, Water, and Soil even with the promotion of relevant equipment and incentives? Carbon leakage occurs when there is an increase in greenhouse gas emissions in one country as a result of an emissions reduction by a second country with a strict climate policy. 

Carbon leakage can occur for many reasons and in an attempt to control this, the European commissions are set to implement the Carbon Border Adjustment Mechanism in a way that would make it compatible with the World Trade Organization (WTO) rules.

What The EU Carbon Border Adjustment Mechanism Truly Is?

 It is a mechanism designed to make the country carbon neutral and it is to be fully implemented by the end of 2021 and achieved by 2030. It will form part of the European Green Deal—an opportunity to build a new economic model. 

By reducing emissions to at least 55 percent compared to the levels in the1990, many changes would be implemented. The EU Carbon Border Adjustment Mechanism (CBAM) promises better roads, better innovations, transportations, jobs to the citizens as well as our health, energy, and well-being, not forgetting the quality and value of the European companies and industries will also be strengthened.

 This objective has been endorsed by the European Council and is being put to work. The European Union Carbon Border Adjustment Mechanism will put a carbon price on the importations of aluminum, steel, cement, fertilizers, and electricity from outside the EU. This will achieve two things; it will discourage European from producing their products outside the country and also, they can produce products at lower prices because no charges are involved from carbon outputs.

How Will The European Union Carbon Border Adjustment Mechanism Work?

Following all the legal basis, the EU CBAM possesses the competency to carry out with the vision of a carbon-neutral community; this is confirmed by Articles 191 to 193 of the Treaty on the Functioning of The European Union.

In regards to this Article, the European Union must contribute to the following objectives; preserving, protecting, and improving the quality of the environment, protecting human health, prudent and rational utilization of natural resources, promoting measures at the international level to deal with regional or worldwide environmental problems, and in particular combating climate change.

• The first option to put the CBAM into action is the CBAM tax—the carbon tax paid by importers when the product is imported into the European Union.
• And the second option is Obtaining a CBAM certificate by importers based on the emission intensity of the products they bring into the EU and also creating a ESG system that enables the EU to manage relations with other non-EU trading partners.

The idea of implementing a CBAM has been criticized by many European Union neighbors; Turkey, Ukraine, and Russian but then it tends to correspond to the WTO rules and other international obligations. “You can’t build an adaptable organization without adaptable people–and individuals change only when they have to, or when they want to.” -Gary Hamel

Pro’s Of The European Union Carbon Border Adjustment Mechanism

This mechanism will help generate revenue for the least developed country as it is expected that they are exempted from paying this tax. Revenues made from carbon prices should be used to develop these countries. The CBAM would ensure that the price of imports reflects their carbon content which would comply with the WTO rules and other international obligations. Also, importers can request a reduction of the CBAM based on their carbon price.  The European Union Carbon Border Adjustment Mechanism can address the issue of carbon leakage and encourage consumption of low-carbon products and facilitate the employment of other measures in achieving a carbon-neutral country. The CBAM will help reduce the risk of carbon leakage by encouraging producers in non-EU countries to reduce or use low-carbon in their production processes. A carbon-neutral country is achievable through consistency and commitment to the goal, maintain a healthy environment, better innovations, transportation, improve our living conditions, create sustainable energy resources, and the development of technologies that will not just benefit the European Union but the rest of the World.

Cons Of The European Union Carbon Border Adjustment Mechanism

Everything that has an advantage stands a chance of having a disadvantage or even negative effects. The EU CBAM is not all that it says it is. If poorer countries are to pay taxes, it will negatively impact their developments and might cost several people their jobs, but again should they be allowed to freely import products with high carbon intensity into the EU? What about the developing countries? they can be affected too. The CBAM can significantly hinder other countries from doing business with the EU, the CBAM should provide a means to be able to accommodate developing countries without causing much harm to them.

 The CBAM, if implemented, will impose a tax on imports in carbon-intensive sectors like steel, cement, and fertilizers from countries that do not meet the environmental standards of the European Union. The CBAM scheme would start in 2023 with a transition period until 2025 when importers will be subject to significant reporting obligations. By 2026, importers will have to purchase CBAM Certificates to cover their carbon emissions in the EU’s current carbon price. This scheme will usher the EU into the desired result by leveling the carbon emission intensity and still be within the WTO rules. The CBAM proposal by the European Union still needs to be amended by the European Parliament and Council, a process that usually lasts between two and three years to be concluded, and if approved the EU should be ready to embrace the change they desire.