It seems that the official implementation of CBAM is postponed until 2027.

According to the draft proposal, the official implementation of the EU Carbon Border Adjustment Mechanism (CBAM) will be postponed until 2027. Small and medium-sized importers will have the opportunity to qualify for exemptions, while stricter penalties will be imposed on companies that do not comply with the requirements, with fines that could reach five times the original amount.

The draft revision obtained by Reuters highlights that companies importing less than 50 tons of regulated products annually will be exempt from carbon tariffs. This measure is expected to alleviate pressure on the vast majority of businesses while ensuring that the total covered carbon emissions remain above 99 percent.

Dan Maleski, head of CBAM at Redshaw Advisors, also shared parts of the draft on his social media, noting that companies with embedded emissions (total direct and indirect emissions) below 100 tons annually will also be exempt from carbon tariffs.

CBAM, which started in 2023, is still in a transitional phase, and companies are not yet required to pay the tariff. Under current regulations, companies must pay a fee if the value of their imported regulated products exceeds 150 euros (approximately 157 USD). If the revisions pass, only about 10% of the originally estimated companies, around 20,000 businesses, will be affected.

According to EU statistics, 97 percent of carbon emissions covered by the carbon tariff come from less than 20 percent of companies. Therefore, the European Commission intends to ease some of the CBAM rules and direct the tariff pressure on the largest carbon emitters.

During the trial period, many companies have already complained about the complexity of the rules and the lengthy process of filling out related forms.

According to the current CBAM regulations, the import of regulated products valued at more than 150 euros must be reported. If the proposed draft passes, the number of affected companies will sharply decrease from the originally estimated 200,000 to about 20,000.

The EU will reduce the burden on companies under CBAM

Maleski also revealed that the official implementation of CBAM will be postponed by one year to 2027. By then, companies will be required to purchase CBAM certificates to cover the carbon emissions of their products.

For companies that do not comply with the rules, the EU will impose stricter penalties, such as fines ranging from three to five times the original amount for splitting imports to avoid the carbon tariff.

Additionally, for importers who have already paid carbon fees in the country of origin, the EU will issue a unique method for calculating the average carbon price across different regions, making it easier for companies to calculate.

Other compliance requirements have also been slightly adjusted, including a reduction in the number of pre-required certificates, which will alleviate financial pressure on importers. Furthermore, the deadline for submitting carbon emission reports is changing from May to October.

The European Commission is expected to submit a proposal for the revision of CBAM this week. After approval by the European Parliament and EU member states, the revised version will be officially applied.

Comment by Vedrana Pribičević

Economist Vedrana Pribičević also commented on this news via Facebook. We fully reproduce her post:

– WE CONTINUE WITH THE ANALYSIS OF WHAT IS HAPPENING. I hope you have recovered from the Oval Office shock and that we can use the remaining neurons in our heads to better understand what is happening. Now comes a series of explanations about what the US is upset about, which concerns the EU. And no, it has nothing to do with wokeness, the crew that is stabbing each other, etc., but it has to do with climate.

So, are you still following?

The EU originally planned to fully implement CBAM (Carbon Border Adjustment Mechanism) by 2026, but is now considering postponing it until 2027. The reason? Many countries and industries are complaining that they need more time to adjust.

What is CBAM and how does it work?

CBAM is essentially a ‘carbon tariff’ – a tax on products coming from countries that do not have strict climate policies like the EU. The goal is to ensure that foreign companies do not gain an advantage over European ones simply because they do not have to pay for expensive carbon dioxide emission regulations in their countries.

This means that, for example, an American, Chinese, or Turkish steel mill exporting to the EU will have to pay an additional cost if their steel has higher carbon emissions than European steel. The same applies to aluminum, cement, fertilizers, and other industries.

Why is CBAM important?

It protects the EU industry – European companies are already paying for emissions through the EU ETS (Emissions Trading System), and CBAM prevents cheaper, but ‘dirtier’ products from pushing them out of the market. It also forces other countries to reduce emissions – if they want to export to the EU without additional costs, they will have to introduce stricter environmental standards themselves. Finally, it reduces ‘carbon leakage’ – companies will no longer be able to relocate production to countries with looser environmental rules and then sell their products in the EU without penalty.

CBAM is de facto a type of binding climate agreement, but not through classic international treaties, rather through trade regulation. Instead of waiting for a global agreement (which is hard to achieve), the EU simply sets the rules of the game in its market – and anyone who wants to trade with the EU must comply.

Why is CBAM ‘binding’ without an international agreement?

The EU is the second largest market in the world, so anyone who wants to export to the EU must play by its rules, creating forced global adjustment. CBAM creates a domino effect: if the US, China, or India do not want to pay additional carbon taxes, they will have to introduce similar measures themselves or risk their products becoming too expensive for the European market. It acts as a trade lever because the EU uses its economic power to indirectly force other countries to reduce emissions, even though it cannot directly compel them as through a classic climate agreement.

Is CBAM a substitute for international climate agreements?

Given that it has been shown that classic agreements like the Paris Agreement are not legally binding when it comes to sanctions – countries can promise to reduce emissions, but there is no penalty if they do not, CBAM is therefore a much more concrete mechanism because it hits where it hurts – in the pocket. So we can say that CBAM is a kind of ‘climate club’.

Note that it is entirely irrelevant whether climate change is happening or not (it is), but it is important that voters have brought politicians to power for whom this can be an agenda, i.e., that ‘green’ is used for protectionism.

Of course, CBAM is actually a consequence of the abandonment of TTIP (Transatlantic Trade and Investment Partnership) between the EU and the US. Had TTIP been signed, there would likely have been no need for CBAM in this form, as the EU and the US would have aligned their standards within the agreement. But since Trump abandoned it because he thought the EU would manage to negotiate standards closer to its own than to the American ones, rather than meeting halfway (like Neda Ukraden), the EU decided to play it this way. When Donald ditched TTIP, the EU reacted this way, and then the trade war started and the rest is history.

In the end, the question is why Trump abandoned TTIP? Because he believed it would deepen the trade deficit with the EU. But about how the world would look if TTIP had been signed, in one of the next posts.