On April 25, 2023, the Council of the European Union adopted the Fit for 55 legislative package. A key component of the package, ensuring competitiveness of EU producers, is the Regulation (EU) of the European Parliament and of the Council establishing a Carbon Border Adjustment Mechanism (the “CBAM”), which concerns imports of products of carbon-intensive industries. The objective of the CBAM is to prevent (in full compliance with international law) efforts to reduce greenhouse gas emissions from being negated by increasing emissions outside the EU borders by relocating carbon-intensive production to countries where the fight against climate change is less effective.

Until the end of 2025, the CBAM will apply only as a reporting obligation. The CBAM will be introduced gradually as free emission allowances are phased out. Free allowances for sectors covered by the CBAM, i.e., cement, aluminum, fertilizers, electric energy production, hydrogen, iron and steel, etc., will be phased out between 2026 and 2034.

The CBAM promotes the import of goods into the EU by those non-EU businesses which adhere to the high climate standards applicable in the EU Member States. This will also ensure the fair treatment of such imports compared to EU producers.