EuropeanCommission10May2023CARBON BORDERADJUSTMENT MECHANISMAs the EU raises its own climate ambition,but less stringentenvironmental and climate policies prevail in non-EU countries,there is a strong risk of so-called 'carbon leakage',which can shiftemissions outside of Europe and seriously undermine EU and globalclimate efforts.That's why the EU needs a new-green -mechanism for imports of goodsfrom outside the EU:a system that puts a fair price on the carbon emittedduring production,and that encourages cleaner industry in non-EU countries.Carbon leakage occurs when industries transfer polluting production to othercountries with less stringent climate policies,or when EU products are replaced bymore carbon-intensive imports.In its first phase,the CBAM will focus on goods most at risk of carbon leakage:CEMENTIRON STEEL ALUMINIUM FERTILISERHYDROGEN ELECTRICITYHOW WILL THE CBAM WORK?under the final Regulation,the CBAM will enter into application in its transitional phase on 1October 2023.To facilitate a smooth roll out,no financial adjustment will have to be made byEU importers during this time.Once fully in place as of 2026,the CBAM will work as follows:EU importers of goods covered by the CBAM will need to buy CBAM certificates.Theprice of the certificates will be calculated depending on the weekly average auctionprice of EU ETS allowances expressed in E/tonne of CO2 emitted.12The EU importer must declare by 31 May each year the quantity of goods and theembedded emissions in those goods imported into the EU in the preceding year.At the same time,the importer surrenders the number of CBAM certificates thatcorresponds to the amount of greenhouse gas emissions embedded in the products.If importers can prove,based on verified information from third country producers,that a carbon price has already been paid during the production of the importedgoods,the corresponding amount can be deducted from their final bill.PDFP-05-21-215-E-N