European climate plan: reforming the EU's carbon market

Franck Di Liberto
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August 28, 2024

Europe wants to drastically reduce its CO2 emissions and to achieve its objectives, it is putting in place a series of measures that will affect industries. To encourage its trading partners to take a similar approach, it is preparing to introduce a carbon tax mechanism at the borders.

The Parliament, the Commission and the Council have reached an agreement on this border carbon adjustment mechanism. It is intended to set a carbon price for imports of certain products into the European Union.

According to the Parliament, the mechanism should encourage "non-EU countries to increase their climate ambition" by taxing the import of goods from third countries with lower climate targets into the EU.

Initially, this will apply to some of the products "most exposed to the risk of carbon leakage": cement, iron, steel, aluminum, fertilizers, electricity and hydrogen. The amount of the taxes will be modulated: if the countries of origin already apply a carbon price, only the difference will be paid.

The implementation of the system will go through a transition period planned to run from 2023 to 2026.