The EU's effort to become climate neutral is kicking into high gear — as of Sunday the bloc's carbon border tax enters a trial period, which is likely to raise tensions with key trading partners.
The Carbon Border Adjustment Mechanism — or CBAM — was adopted last year with the aim of ensuring that goods manufactured in Europe, and subject to the EU's Emissions Trading System, which sets a price on carbon emitted, will be able to withstand competition from products made in countries where polluting doesn’t come with the same price attached.
Starting October 1, the EU's trading partners will have to report the greenhouse gas emissions tied to their exports of iron, steel, cement, aluminum, fertilizer, hydrogen and electricity
Initially, the requirement is just to report the emissions — although companies failing to do so face fines — the actual payments go into effect in 2026.
The point of the exercise is to both shield EU companies from unfair completion and to nudge other countries into setting their own price on carbon. Non-EU producers can deduct the cost of CBAM if they have their own domestic carbon tax.
"CBAM will encourage industry worldwide to embrace greener technologies," EU Economy Commissioner Paolo Gentiloni said in a statement. "It will also prevent so-called carbon leakage, or the relocation of production outside our borders to countries with lower environmental standards."
While the EU says this is a key part of its project to cut greenhouse gas emissions by 55 percent by the of the decade and to become climate neutral by 2050, the carbon border tax has caused an explosion of fury from key trading partners and concern that businesses aren't ready for the paperwork requirements.
