The Carbon Border Adjustment Mechanism (CBAM) is a policy tool designed to impose costs equivalent to the carbon price borne by products produced in facilities covered by the EU Emissions Trading System (EU ETS) on goods imported into the European Union (EU).

The EU announced the European Green Deal on December 11, 2019, pledging to achieve carbon neutrality across the European continent by 2050. In line with this commitment, the legislative package known as "Fit for 55" was introduced, promising to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels. CBAM aims to prevent EU businesses from facing unfair situations such as production facilities relocating to regions with less intensive regulatory standards as EU environmental regulations are strengthened. It also seeks to reduce carbon leakage* to achieve the EU's climate goals.

* Carbon Leakage : occurs if, for reasons of costs related to climate policies, businesses in certain industry sectors or subsectors transfer production to other countries or imports from those countries replace equivalent products that are less intensive in terms of greenhouse gas emissions.

One CBAM certificate corresponds to one tonne of CO2 equivalent of 'embedded emissions' in those goods.If the specific embedded emissions of imported goods exceed the free allocation under the EU ETS per product, the excess emissions must be multiplied by the relevant value and submitted. The price of CBAM certificates will be based on the weekly average price of the EU ETS. Regulations regarding EU ETS-based price inquiries and the determination of the carbon price adjustment mechanism are expected to be announced in 2025.

• Regulation (EU) 2023/956 of the European Parliament and of the council of 10 may 2023 (CBAM Regulation)
• Commission Implementing Regulation (EU) 2023/1773 (CBAM Implementing Regulation during the transitional phase) 

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Implementing System

The governance of the Carbon Border Adjustment Mechanism (CBAM) consists of the European Commission, customs authorities, and implementing   authorities, and operates according to the following system

CBAM Declarant
Importers or representatives located in EU member states are obligated to report emissions, submit verification reports, and provide CBAM certificates.

Reporting Period

CBAM Emission calculation procedure

The procedure for calculating the specific embedded emissions of products under CBAM is as follows:

① Definition
Identify the products which are in scope of CBAM sector and identify facility groups within the plant. Define production processes for each product.

② Monitoring plan
Determine methodology for monitoring greenhouse gas emissions by facility group and production process.

③ Direct indirect emission
Calculate direct emissions from fuel combustion and process reactions, as well as indirect emissions from electricity consumption.

④ Attributedemission

Determine emissions attributed to production processes from total facility emissions, considering energy and material flows between production processes.

⑤ Specific embedded emission

Calculate the specific embedded emissions of precursor consumed in production processes, add them to the attributed emissions, and divide by the product's production volume to determine the specific embedded emissions.