Sustainability | ~4 min read
European imports: greener and cheaper?
Europe has stepped up its decarbonisation ambitions, launching phase two of the Carbon Border Adjustment Mechanism. We explore what this means for importers.
The European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM) aims to lower emissions while ensuring that firms employing “greener” production processes are not financially disadvantaged (see our blog post).
The first phase required importers to report only on production process emissions, while the second phase – which went live earlier this year – applies financial commitments on carbon-intensive imports.
EU importers of cement, iron, steel, aluminium, fertilisers, electricity and hydrogen above 50 tonnes are in scope. They must register under the mechanism and purchase EU carbon certificates to cover the embedded carbon emissions. Importers will pay for certificates on their 2026 imports next year.
The goal is two-fold: to lower the emissions of global trade by favouring the import of low or lower-carbon products, and to ensure EU industry can generate a return on green investments.
Through the requirement to buy CBAM certificates for the imported product categories listed above, EU importers will pay a surcharge on higher-carbon products – although there will be circumstances where the price is deducted.1 At year end, importers will be required to surrender the amount of certificates equivalent to the estimated amount of emissions from the production of their imported goods, expressed in CO2 tonnes. [might be worth clarifying if amount is €-value or weight].
Impact on investments
Although the first payments are not due until next year, impacted companies will have to consider and integrate the additional cost. The selling price differential between lower-carbon goods in Europe (and later outside Europe) and higher-carbon goods should narrow. In turn, reducing this competitive disadvantage for European companies should help support returns on green investments – particularly European steel, aluminium and concrete producers.
The CBAM will continue to evolve. We anticipate proposals to reform the Emissions Trade System – which caps the total emissions allowed from each sector. This is likely to include discussion on how to organise the planned phasing out of free allowances, and the extension of the scope of imported goods. These developments should further enhance the business case for low-carbon products.
1 When the importer can demonstrate that a carbon price has already been paid https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en, or article 9 of the regulation 2023-956 https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:02023R0956-20251020
