Europe’s CBAM encouraging more countries to set up carbon markets to hit net zero targets, says IETA

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October 2, London – IETA welcomes the October 1 launch of the European Union’s Carbon Border Adjustment Mechanism (CBAM), and we congratulate the EU on their determination to encourage the low-carbon transition around the world.

Starting October 1, importers of selected carbon-intensive goods into the EU must report the carbon content of their imports, and from 2026 they will be required to pay for that carbon content by purchasing CBAM certificates at a price equivalent to EU carbon price.

Carbon price effectively paid in the country of origin will be deducted, decreasing the number of CBAM certificated to be surrendered.

Countries who have a domestic carbon price equivalent to the EU’s price will be able to fully avoid the cost of CBAM. The price of EU carbon allowances has averaged €85.90 in the year to date.

At the same time, domestic European producers of the same products will begin to see their free allocation diminish from 2026, reaching zero by 2034. Energy-intensive and trade-exposed industries have historically benefit from free allowances to reduce the risk of EU industry relocating abroad. By ensuring that carbon price for imported and domestic products is equal, CBAM will gradually replace free allocation as a tool to prevent carbon leakage.

“The EU’s CBAM is the first climate mechanism of its kind to address carbon leakage and will usher in a new era of climate policy,” said Julia Michalak, EU Policy Director at IETA.

“By gradually replacing free allocation, CBAM is an indispensable tool protecting the competitiveness of European industries on the EU’s journey to net-zero. It is also instrumental in encouraging countries to introduce carbon pricing, one of the most effective measures to combat climate change. Put simply, there is no net zero without carbon markets to direct the immense amount of finance that is needed.”

In response to the EU’s plans to introduce CBAM several major exporting countries have begun to develop their own carbon markets. Several countries, including major economies such as India, Brazil and Indonesia, are currently setting out the structures of their carbon markets, which will establish a domestic price on greenhouse gases.

The EU’s CBAM will in the first instance apply to imports of cement, iron and steel, aluminium, fertilisers, hydrogen and electricity.

ABOUT IETA

IETA is the voice of business on carbon markets around the world. Established in 1999, IETA’s members include global leaders in the electricity, oil/gas, cement, aluminium, chemical, mining, technology, standards, verification, broking, trading, legal, finance, accounting and consulting industries.