EU CBAM enters new phase, further advancing carbon pricing

By Flannery Winchester

The European Union’s carbon pricing efforts have just taken the next major step forward. As of Sunday, the EU’s carbon border adjustment mechanism (CBAM) entered its reporting phase.

“Starting October 1, the EU’s trading partners will have to report the greenhouse gas emissions tied to their exports of iron, steel, cement, aluminum, fertilizer, hydrogen and electricity,” Politico explains. “Initially, the requirement is just to report the emissions — although companies failing to do so face fines.”

After a few years of the reporting phase, the EU CBAM will go into full effect in 2026. Ultimately, the idea is this: “If you come with dirty products on our market, you have to pay a price as if you were in the Emissions Trading System of the European Union. But we prefer you keep the money in your economy by putting a price on carbon in your economy,” European Commission President Ursula von der Leyen explained a few years ago at COP26 in Glasgow.

Why? “The European Union has been accelerating its push to become the first climate-neutral continent,” Bloomberg reports. Their CBAM policy is now “nudging other parts of the world to follow suit.”  

“If a carbon border adjustment is designed well, it’s a really powerful and useful mechanism to incentivize foreign producers to decarbonize,” Shuting Pomerleau from Niskanen Center said in a past interview with CCL. Indeed, the EU’s CBAM will affect U.S. trade, which is a major motivator for lawmakers to take the policy seriously.

Making the case in the U.S.

These developments are especially exciting because CCL has long advocated for this type of policy. Since the early days we started lobbying Congress, we have asked lawmakers for policy that includes three elements: 1) a price on carbon, 2) a cash payment to Americans, and 3) a carbon adjustment at the border.

With the EU’s own CBAM looming in recent years, U.S. lawmakers have been even more receptive to our lobbying in this area and have started taking action. Most recently, a bipartisan pair of Senators — Sen. Kevin Cramer (R-ND) and Sen. Chris Coons (D-DE) — introduced the PROVE IT Act, which would require reporting on carbon intensity of certain goods. 

That legislation is essentially a first step toward our own CBAM here at home, CCL’s research department explains. “The first step [to establishing a CBAM in the U.S.] involves calculating the carbon intensity of a variety of American industries and foreign competitors. That’s exactly what the PROVE IT Act would task the Department of Energy with doing.”

Brush up on your CBAM knowledge

With the EU’s CBAM policy making headlines this week, make sure you’re up to speed by checking out CCL’s other blog posts and trainings on the topic:

Carbon border adjustments and the PROVE IT Act
How Europe’s carbon pricing could affect U.S. trade
Carbon price with border adjustment could be key tool for climate goals

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