Governance & Policy
Carbon Border Adjustment Mechanism (CBAM)
Definition
The Carbon Border Adjustment Mechanism, established by Regulation (EU) 2023/956, requires importers of specified carbon-intensive goods — initially cement, iron and steel, aluminium, fertilisers, electricity and hydrogen — to report embedded emissions and, from the definitive regime, to purchase CBAM certificates reflecting the EU carbon price, in order to prevent carbon leakage.
References
Legal text, goods covered and certificate rules
Implementation timeline and guidance
Overview
What it means
Imported goods face a carbon cost comparable to that borne by EU manufacturers, changing the economics of sourcing from regions without carbon pricing.
How it is used
Importers file quarterly embedded-emissions reports during the transitional period and prepare for certificate surrender; trade partners debate its WTO compatibility.
Why it matters
It is the first large-scale attempt to extend a domestic carbon price to trade, and it is prompting carbon pricing and measurement systems worldwide.
Review questions
What boundary does the term cover? What evidence would prove or narrow the claim? Who could reasonably misunderstand the term if the context is not stated?