Navigating Europe’s Carbon Border Adjustment Mechanism: A View from Moldova

Tetra Tech is accelerating the clean energy technologies and policies the world needs to achieve net-zero. Our energy sector experts help governments, utilities, and institutions take climate action by implementing strategies for energy diversification, developing resilient infrastructure, and promoting and strengthening decentralized energy systems. Based on their experience and advisory to projects like the USAID Moldova Energy Security Activity (MESA), Tetra Tech’s Sofia S. , Taranu Marius , and Rodrigo Chaparro look at the European Union’s (EU) new Carbon Border Adjustment Mechanism (CBAM) and its impact on countries and companies that trade in EU markets.

Aligned with EU climate commitments, CBAM recently came into effect as a tool to reduce carbon leakage. Essentially, CBAM aims to prevent industries from leaving the EU for countries with less stringent environmental and carbon reduction policies by introducing a fair price on the carbon embedded in the production and export of products to the EU.

While CBAM will affect nearly every industry, from automotive parts to ready-made garments, the impacts for energy-intensive industries such as cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen could be profound.

What does CBAM mean for countries and companies that trade in EU markets? Let’s look at the case for Moldova.

Through implementation of the USAID MESA project, Tetra Tech conducted a comprehensive study to analyze CBAM's impact on Moldova, exploring the country’s regulations, the industrial landscape, and energy policies. Extracting insights and conducting sector-specific analyses, our study provides nuanced perspectives through comparative evaluations with global carbon pricing mechanisms.

While CBAM will affect nearly every industry, from automotive parts to ready-made garments, the impacts for energy-intensive industries such as cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen could be profound.

Our findings show that CBAM introduces challenges and opportunities for Moldova, notably influencing sectors like cement, metal, and power. Throughout the CBAM transitional period (October 1, 2023 – December 31, 2025), exporters must establish robust carbon reporting mechanisms, aligning processes with the EU Emission Trading System (ETS) and anticipating limited short-term impacts. Moldova has already started aligning its reporting obligations with CBAM, reinforcing infrastructure and capacity. Key companies, including Lafarge (cement) and Moldova Steel Works, are gearing up for compliance.

At the same time, Moldova’s commitment to a 27 percent renewable energy share by 2030 intersects with CBAM and EU ETS considerations. As outlined in Moldova’s National Energy Strategy through 2030 (adopted in 2013) and in Moldova's Association Agreement with the European Union (2014),?Moldova's goals encompass energy security, sustainable development, and EU market integration. Moldova also envisions integration with the EU market and transposing the ETS Directive and is contemplating implementation of either an ETS or a carbon tax. Through the USAID MESA project, Tetra Tech is also advising the Government of Moldova on a National Energy Strategy through 2050 that will provide the necessary prerequisites to enhance energy security and support the sector’s sustainable development, through which it can truly contribute to achieving the national objective of carbon neutrality by 2050.

Challenges arise for a standalone national ETS in the short term, prompting ongoing regional ETS discussions. A short-term carbon tax is also under consideration to offset CBAM impacts, with negotiations and technology assessments playing crucial roles.

Based on the study, Tetra Tech proposed an indicative CBAM roadmap for Moldova that spans short-, medium-, and long-term actions to prepare for and institute carbon pricing mechanisms aligned with CBAM and broader climate goals. Navigating CBAM intricacies, aligning with EU energy policies, and determining optimal carbon pricing strategies place Moldova at a pivotal juncture. Our recommended actions – adopting the law on climate action to enable a carbon pricing and emission permitting, amending legislation on industrial emissions to include carbon emissions, and adding dedicated staff positions in the Ministry of Environment to manage emission permitting, reporting, and quality assurance – will help Moldova get there. Swift implementation of the roadmap is vital to meet the reporting requirements by the end of the CBAM transitional period (December 31, 2025) and position Moldova for potential EU accession in 2030.

Understanding and aligning with EU policies emerge as critical for seamless trade relations and regional stability. Early preparation for CBAM implementation, including robust reporting mechanisms and institutional capacity building, is emphasized as a proactive strategy.

Our study and recommendations in Moldova offer crucial takeaways for neighboring countries. Understanding and aligning with EU policies emerge as critical for seamless trade relations and regional stability. Early preparation for CBAM implementation, including robust reporting mechanisms and institutional capacity building, is emphasized as a proactive strategy. The study underscores collaborative regional efforts, potentially exploring a regional ETS, and offers insights into navigating the intricate process of instituting carbon pricing mechanisms for sustainable regional development.

Learn more about Tetra Tech’s work to accelerate a clean and just energy transition in Europe, Eurasia, and around the globe. And read our latest insight on carbon markets to see how carbon finance options defined in Article 6 of the Paris Agreement are working.