Carbon Border Adjustment Mechanism

A Carbon Border Adjustment Mechanism (CBAM) is an emerging bipartisan tool that aims to cut global pollution and support American industry A CBAM is a fee applied to products upon entry or imports that accounts for the amount of greenhouse gases (GHG) emitted during their production in their country of origin. When in place, these fees can improve domestic industries’ global competitiveness against cheaper, higher-polluting imports and prevent producers from flocking to countries that lack environmental protections. A CBAM can be designed as a permissible import fee under the World Trade Organization. To be clear, it is not a carbon tax. In fact, a CBAM in the United States would make domestic steel and aluminum more cost-competitive and help producers capture an additional $8.5 billion and $6 billion of their respective markets by 2030.

Detailed overview:

This mechanism will be implemented in phases and is aligned with the phase-out of the allocation of free allowances set in the EU Emissions Trading System (ETS).

This transitional period intends to:

1. serve as a pilot and learning phase for importers, producers, and authorities involved.
2. collect information on the emissions to refine the methodology for calculating embedded emissions.
3. bring the price of carbon produced in the EU into line with the price of carbon intensive goods imported into the EU.

Obligations for EU businesses during this transitional period

During the transitional period the obligations arising from the importation of goods subject to the CBAM are limited to:

• Submit CBAM reports on a quarterly basis: Importers of goods (or their indirect customs representative) will have to report greenhouse gas emissions (GHG) embedded in their imports (direct and indirect emissions) during a given quarter of a calendar year, without making any financial payments or adjustments. The report shall be submitted no later than one month after the end of that quarter. The obligation to submit the CBAM report on a quarterly basis will cover the whole transitional period from 01/10/2023 to 31/12/2025.
• Registration in the CBAM Transitional Registry: Developed by the EU Commission to assist traders in making and submitting the CBAM report, this registry will also allow communication between the Commission, the competent authorities, the national customs authorities and traders. Access and registration to the registry should be requested through the CBAM Portal (TAXUD).

The EU’s?Carbon Border Adjustment Mechanism (CBAM) is expected to be fully in place as of 2026, but initially it will only apply to a certain number of products with a high risk of carbon leakage such as:

• iron / steel
• cement
• fertilizers
• aluminum
• hydrogen
• electricity

Impact on India:

Production in India may implicitly face tariffs to the tune of 10.5 per cent value-added tax (VAT) if the European Union's (EU’s) Carbon Border Adjustment Mechanism (CBAM) comes into effect.

“The EU is generally not the primary market for CBAM products originating from developing Asia, though the tariff equivalents can be large in some cases. In only a couple of cases (India and Korea) does the EU account for more than 10 per cent of core CBAM exports from developing Asia, suggesting that CBAM’s impact on production in developing Asia may be limited,”

Read the below article on detailed impact :

https://www.business-standard.com/economy/news/india-may-face-10-5-implicit-vat-on-production-under-cbam-regime-study-124022600815_1.html

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