CBAM is a mechanism used by government to account for the carbon cost of producing imported goods. The mechanism goal is to reduce greenhouse gas emissions and support progress towards a net zero world. Initial reporting obligations for CBAM began on 1st October 2023. Importers of certain materials/goods will be required to pay for embedded emissions from 1st January 2026. The UK Government is consulting on the design of a UK specific CBAM through 2024, and based on the literature, the UK CBAM will be similar to the EU CBAM, but with differences in terms of timescale and scope. The CBAMs aim to prevent carbon leakage by ensuring equal treatment of both domestic and imported goods. The mechanism applies a charge to carbon emitted during the production of imported carbon-intensive goods, currently covering the following:
- Aluminium
- Cement
- Electricity
- Fertilisers
- Hydrogen
- Iron
- Steel.
Throughout this year’s London Metal Exchange week there was speculation as to how CBAM will impact the market and end users. CBAM requires information on emissions embedded in products to be collected, reported and verified. This process will of course create reporting and administration costs. Further official UK Government information can be read here: https://commonslibrary.parliament.uk/research-briefings/cbp-9935/
Linked with CBAM, a ‘Climate Club’, co-founded by Germany and Chile, was established in 2022. The Club is set to pursue world cooperation on carbon leakage. The aim of the initiative is to seek mechanisms to help achieve climate neutrality by 2050, with special emphasis on the industrial sector. Reportedly, it is based on 3 pillars of activity:
- Building international consensus on environmental issues
- Coordinating ambitious mitigation policies
- Creating international alliances that encourage international action and cooperation to this end.
Read more on the ‘Climate Club’ here: https://www.minrel.gob.cl/news/on-the-second-day-of-cop28-minister-van-klaveren-and-german-chancellor
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