The EU Carbon Borders Adjustment Mechanism (CBAM) came fully into force on the 1st January. It requires importers of carbon intensive materials, such as metals and cement, into the EU zone to report the carbon impact of these materials. CBAM is a carbon tariff, designed to prevent ‘Carbon Leakage’ – the sourcing of materials from countries with lower environmental standards and less stringent carbon reduction targets. In simple terms, it makes high carbon products less competitive than lower carbon alternative sources.
The negative impact on UK exporters into the EU zone is that it requires them to report the carbon impact of their products, which is an additional burden.
There is a positive impact though. It can make UK exports more competitive than those from countries with higher carbon production.
The EU CBAM therefore offers an incentive for UK manufacturers and exporters to decarbonise.
In practical terms, taking the example of a UK company that makes metal components for the European car manufacturers, it incentivizes on-site renewable energy generation, investment in more energy efficient equipment, improved process efficiency and reduced waste. All these actions will decrease the declared carbon footprint of their products, reducing the carbon tariff burden of their customers. And of course, that UK component manufacturer will enjoy lower costs. A double-win.
The UK will be introducing its own CBAM in 2027.