The EU’s carbon border adjustment mechanism is helping to catalyze new carbon pricing mechanisms worldwide, with countries implementing, expanding or reconsidering their approaches to their carbon pricing policies, Aurora D’Aprile, EU policy officer at the International Emissions Trading Association, told Platts.
However, the Commission should fast track the remaining implementing acts, she said, as clarity is needed on the calculation of carbon prices paid abroad and the discounts importers can obtain before the definitive period of CBAM starts in 2026.
“We strongly encourage the European institutions to fast track the implementing acts, and the recognition of how to calculate and to recognize the carbon price paid in third countries,” said Aurora D’Aprile in an interview with Platts, part of S&P Global Commodity Insights.
Fragmentation remains a key issue arising from the EU’s carbon levy, IETA said in a report published June 26.
“It’s a very fragmented, fast-paced space,” said D’Aprile. “CBAM has proved to catalyze carbon pricing evolution, carbon pricing initiatives and the evolution of emissions trading systems all over the world.”
However, CBAM cannot be seen as a purely environmental measure abroad, she warned, adding that the EU measure has to be considered in the context of geopolitical and climate trade discussions.
The first legal challenge arising as a response to the EU’s carbon border mechanism came in May, when Russia launched a formal dispute at the World Trade Organization against the bloc’s CBAM and emissions trading system.
Russia said the measures imposed by the EU were “discriminatory” and “do not concern a genuine environmental measure.”
“The decision by Russia to revert this issue to the WTO is of key relevance,” said D’Aprile. “The risk is that operating globally is going to become more and more complex and uncertain, and costly, due to fragmentation. This is not something that would benefit the climate.”
Carbon prices paid abroad
The EU’s CBAM regulation states that importers can claim a reduction in the number of certificates they must surrender, corresponding to the carbon price already effectively paid in the country of origin for the declared embedded emissions of CBAM goods.
The EC defines the carbon price as a “monetary amount paid in a third country, under a carbon emissions reduction scheme, in the form of a tax, levy or fee in the form of allowance under a greenhouse gas emissions trading system”.
However, the EC is still working on several implementing and delegated acts before the definitive phase of the regulation kicks in. The publication of the implementing act that is set to further address the deduction of carbon prices paid in third countries is expected by the end of 2025.
“This is a central element of key importance for all the businesses that operate globally and will have to consider this to assess their strategies and their liabilities,” D’Aprile said.
The transitional phase of CBAM runs from October 2023 to December 2025. During this period, importers of carbon-intensive products such as iron and steel, cement, fertilizer, aluminum, hydrogen and electricity are only required to report the greenhouse gas emissions embedded in their imports.
Companies are required to purchase certificates starting in February 2027 for goods imported in 2026, according to the latest simplification package put forward by the EU. However, market participants have previously said that several challenges remain ahead of the definitive period.
International credits
The regulation on reductions for carbon prices paid in third countries only extends to compliance carbon schemes such as emissions trading systems or carbon taxes and does not mention international carbon credits or Article 6 units under the Paris Agreement.
“The role of international credits is something that IETA encourages to be put into the discussion,” said D’Aprile.
She welcomed the EC’s decision to greenlight the use of international credits and Article 6 units toward meeting the bloc’s 2040 climate targets, saying that this was a positive signal.
The amendments to the bloc’s climate law earlier in July will allow the “limited use of high-quality international credits” under Article 6 of the Paris Agreement starting from 2036. The regulation will allow for 3% of the bloc’s 1990 net emissions to be counted toward the 2040 target.
The use of these Article 6 units toward obtaining discounts under the EU’s carbon border levy, however, has not been addressed by the EC.
“This is something that may, in the future, enter into the conversation, but as of now, the priority should be how to recognize the carbon price effectively paid,” D’Aprile said.
The role of Article 6 will likely become part of the CBAM discussion in the future, she said, because the EU’s trade partners are already considering Article 6 in their compliance mechanism.
Singapore and Japan have recently issued policies that may encourage the trading of Article 6.2 carbon credits, with Japan establishing a tailored system, the Joint Crediting Mechanism, which only accepts bilateral methodologies approved by JCM partners.
Once the regulation enters the definitive period, the price of CBAM certificates will be calculated based on the quarterly average of EU Allowances in the first stage, before the calculation moves to a weekly average.
Platts assessed the weekly average price of EU Allowances for the nearest December 2025 delivery at Eur70.71/mtCO2e ($82.66/mtCO2e) on July 11.
