The EU’s ‘Fit for 55’ package, dubbed “the biggest climate protection law of all time” by one MEP and designed to put the EU on track to cut GHG emissions by 55% by 2030, has become law.

The CBAM (Carbon Border Adjustment Mechanism), a new carbon market for automobiles and buildings, and an €86.7 billion ‘Social Climate Fund’ are the three main components of this law.

The long-awaited adjustment to the EU’s carbon border tax laws would see items imported into the EU from countries with less rigorous carbon legislation charged with an import tariff.

This will bring them in line with identical commodities produced in the EU, preventing European businesses from losing market share.

What is the aim of the CBAM?

The CBAM is intended to level the playing field for EU manufacturers and will first apply to cement, iron and steel, aluminium, fertilisers, energy, and hydrogen, possibly expanding to chemicals and polymers in 2026.

It replaces the EU’s old ETS (Emissions Trading System) at the border.

Importers must disclose CBAM starting in October 2023, with financial liabilities beginning in 2026.

What’s the UK doing about climate change?

In March, the UK government published a consultation on a similar UK CBAM that would work similarly to the EU’s and might be implemented in 2026. 

This would impose new compliance and carbon reporting duties on UK corporations in specific industries and those presently subject to the UK Emission Trading Scheme (ETS).

A new ETS encompassing fuels used in automobiles and buildings will be adopted in 2027, with the price of petrol and diesel likely to rise by €0.10 per litre, with the price of a tonne of carbon capped at €45 to prevent escalation. 

The Social Climate Fund will provide direct income support for rising road travel and heating costs due to the ETS and infrastructure upgrades.

First published in the Sillion ESG Briefing.