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Carbon Border Adjustment Mechanism
In its efforts to mitigate the global release of carbon emissions and ensure a level playing field between geographical areas, the European Union just complemented its Emissions Trading System with a new mechanism targeting non-EU production.
EU Emissions Trading System
Adopting a polluter pays strategy, the European Union introduced its own Emissions Trading System (ETS) in 2005. This “cap & trade” scheme is binding for most EU-based industries and sets a maximum amount of CO2 emissions each of them can release every year.
However, the EU ETS comes with two main shortcomings:
- By financially penalising EU-based production only, the ETS necessarily leads to carbon leakage. This concept entails the progressive delocalisation of EU production towards areas with less stringent environmental regulation.
- Free carbon allowances have been granted to the most affected sectors to maintain EU competitiveness. Such exemptions mitigate the incentives for companies to curb their carbon footprint.
Carbon Border Adjustment Mechanism
To tackle these issues, EU legislators validated in December 2022 a Carbon Border Adjustment Mechanism meant to work in parallel with the EU ETS from 2026 onwards. This scheme cracks down on carbon leakage as it equalizes the carbon price paid for production made within and outside Europe. By doing so, it ensures a level playing field between EU and non-EU businesses and enables a progressive phase-out of free allowances within every sector.
By 2030, every company engaged in international trades currently covered by the EU ETS will be impacted. The primarily targeted sectors are the ones combining high carbon and trade intensities, these include:
- Iron & steel
- Cement
- Aluminium
- Fertilisers
- Electricity
- Hydrogen (under certain conditions)
How Sia Partners can help you
Sia Partners is the perfect ally to guide you through the Carbon Border Adjustment Mechanism transition with our in-depth expertise in climate regulation and required organisational changes. Among others, here are some of the objectives we can help you to achieve:
- Regulation Analysis
- Gap analysis for compliance and impact assessment
- Roadmap definition & deployment support
- Uncertainty reduction through close regulatory watch
- Data & AI
- Automation & AI tools implementation to ensure all-time data availability
- Optimisation of reporting processes and dashboards
- Data quality assessments
- Operational Strategy
- Adaptation of internal organisation to sustain change
- Carbon offsetting risks and opportunities assessment
- Supply chain review & optimisation
