On May 16, 2023, the Border Carbon Adjustment Mechanism - CBAM (Regulation EU 2023/956) was published, establishing the payment of carbon tax on imports of goods in all countries of the bloc.

• What is CBAM?

The CBAM aims to reduce carbon emissions by the countries in the block. To this end, it establishes rules for the importation of goods, with the objective of equalizing the treatment of products manufactured in the European Union to countries with less strict environmental policies, such as Brazil.

In practice, CBAM will result in additional costs for exporters.

• How will it work?

Importers will be required to purchase Certificates on a platform established by the countries of the European Union. The prices of these certificates will be based on the average weekly closing of trading in emission allowances.

The functioning of the system and the rules for calculating carbon in products with indirect emissions (related to emissions produced by electricity consumed in the production of a certain good) will be defined in due course by the European Commission.

• When will CBAM come into effect?

The mechanism will have a transition period to ensure a more effective and smooth transition to the new system. Reporting obligations on carbon emissions will begin on October 1st, 2023, but payment of carbon taxes (issuance of Certificates) will only start on January 1st, 2026.

• What changes for exporters?

As of October this year, it will be necessary to report only the greenhouse gas (GHG) emissions incorporated in its imports (direct and indirect emissions), without the need to make payments or financial adjustments.

This means that exporters will have to track carbon emissions in the production chain of a given commodity and calculate these emissions, according to the European regulation.

As of 2026, importers will have to declare annually the amount of goods imported into the European Union in the previous year and the GHG emissions incorporated in them. Additionally, they will have to deliver the corresponding number of CBAM certificates.

The price of these certificates will be calculated according to the weekly average price of the ETS allowance auction, expressed in €/ton CO² emitted.

Therefore, CBAM will imply an additional cost for exporters who wish to maintain a relevant position in the European Union. Companies aligned with the environmental compliance agenda will certainly find it easier to continue exporting to the European Union.

• Which industries will be affected?

Initially, the European Union determined that the following industries are subject to CBAM:

• Cement
• Iron and steel
• Aluminum
• Fertilizers
• Electricity
• Hydrogen

It is believed that progressively new industries will be included in this list.