European union: The carbon tax at the border in six questions
In its fight against global warming, the European Union is about to take an important step: the launch of the operational phase of its Carbon Border Adjustment Mechanism (CBAM). How will it work? Who will be affected? What will be the economic consequences? These questions (and a few others) are addressed below.
In a month's time, the 30th Conference of the Parties (COP) on climate change will be held in Belém, Brazil. With global warming accelerating (the +1.5°C warning threshold compared to the pre-industrial era is set to be exceeded with certainty), the conference will review the "nationally determined contributions” (NDCs) to reduce emissions by 2035, with a higher level of ambition. However, to date, the EU has still not revealed its intentions (unlike Canada, Brazil, Japan and the United Kingdom, among others), even though achieving the "fit for 55" target (at least 55% reduction in GHG emissions by 2030 compared to 1990) requires greater efforts[1] . It is in this context that the EU-27 are strengthening their measures by introducing a carbon border tax.
When? For whom?
The 1st of January 2026 will mark the start of the operational phase of the Carbon Border Adjustment Mechanism (CBAM). From that date, and after a long preparatory phase, companies in the European Union (EU) will be required to declare the CO2 emissions incorporated in their imports of goods (from outside the EU) when these exceed 50 tonnes per year. Introduced by the Omnibus Simplification Act, this threshold effectively exempts small and medium-sized enterprises (SMEs) from the scheme (i.e. 90% of the total), which is therefore mainly reserved for large groups. However, the CBAM would not be rendered meaningless: according to European Climate Commissioner Wopke Hoekstra, it would still capture 99% of emissions from the sectors concerned (see below). Another relaxation introduced by the Omnibus law is that, whereas the initial scheme provided for the payment of CBAM certificates was scheduled to start in 2026, the deadline has been pushed back to 1 February 2027.
The sectors involved are those whose production activities are the most energy-intensive and account for nearly half of total emissions in Europe. These are steel, aluminium, cement, fertilisers, as well as electricity and hydrogen obtained from fossil fuels (mainly gas).
Author
BNP Paribas Team
BNP Paribas
BNP Paribas Economic Research Department is a worldwide function, part of Corporate and Investment Banking, at the service of both the Bank and its customers.
