EU's Green Tariff: Carbon Border Tax Starts Now

The European Union has implemented a landmark Carbon Border Adjustment Mechanism (CBAM) today, marking a significant shift in green trade rules. This mechanism mandates that companies importing steel, cement, and other carbon-intensive products into the EU must now demonstrate compliance with low-carbon regulations or face financial penalties. The stated goal is to foster a more equitable market by ensuring EU industries are not undercut by competitors operating under less stringent environmental standards.

This initiative is designed to prevent "carbon leakage," a phenomenon where production shifts to regions with more lenient regulations due to cost advantages. Initially, CBAM will cover sectors including iron and steel, aluminium, cement, hydrogen, electricity, and fertilisers. Future expansion is planned for 2028 to include products utilizing steel and aluminium, such as machinery and appliances, to close potential loopholes.

Despite protests from major economies like China and the US, the EU is moving forward with CBAM. The UK government is expected to introduce its own CBAM next year, but has yet to finalize a deal with Brussels regarding the linking of their carbon markets. This unresolved issue could lead to confusion and potential penalties for British exporters, although officials express optimism for a straightforward resolution once the carbon trading schemes are aligned.