Tag: Emission

CBAM will enter its definitive phase on January 1 2026, and is intended to level the playing field between domestic producers that are exposed to the EU’s Emissions Trading System (ETS) and international producers that are not under the same requirement.

Market participants have frequently pointed to loopholes within the policy that they say threaten the competitiveness of Europe’s industry and fail to deliver on decarbonization objectives.

Sources have pointed to the so-called “scrap loophole” whereby remelted aluminium scrap is allocated a zero emissions rating under CBAM. This means that non-EU producers can avoid CBAM costs, while EU producers are still subject to the ETS, potentially leaving a gap ripe for exploitation.

In addition, the “downstream product loophole” is another challenge, with some arguing Europe could be exposed to an influx of downstream products as it has no CBAM liability, potentially resulting in a competitive disadvantage for EU producers.

Other challenges include continuing uncertainty around the policy’s ambit, open consultations, and questions around when and if to include Scope 2 emissions.

But the development of ETSs in other regions could offer a solution to some of the issues that have been raised in relation to CBAM.

Instead of paying a tax on embedded emissions in imported goods, the carbon price would be paid within the origin country’s ETS, with carbon tax revenue staying in that region rather than being spent in the EU.

“In the case of Turkey, there is a direct linkage with what’s happening to EU policy and market,” Fastmarkets’ Head of Carbon Modeling, Shyamal Patel, said during the panel.

“The actions of European policymakers are certainly influencing their international counterparts – really in some ways that is a step towards the ideal,” Patel added.

The Turkish ETS is set to enter its two-year pilot phase in 2026. Under Turkey’s Climate Change Mitigation Strategy and Action Plan (CCMSAP), which outlines the country’s plan for achieving net-zero emissions by 2053 – it was noted that the development of its ETS would align with the EU’s ETS and its CBAM.

“In an ideal world, CBAMs would not be needed – there would be domestic carbon pricing in every jurisdiction, and those carbon revenues would be recovered at home – in Turkey, India, China and beyond. CBAM would be much less of a concern in all our minds,” he added.

This sentiment was echoed by Clement Silva, Partner at Osrich SA, on the panel.

“The UK CBAM should be implemented in 2027… So, what they are trying to do is to link it to EU CBAM… The same for Turkey’s [ETS], and Serbia has also created their own strong emission scheme,” Silva said.

In April, the UK published draft primary legislation for its CBAM, which will become effective from January 1 2027, using the previous quarter’s average UK ETS auction price to calculate liabilities under the mechanism. And, in May, the UK and EU agreed to work toward linking their ETSs.

Serbia, meanwhile, is currently preparing to introduce a carbon pricing mechanism through the establishment of a national Monitoring, Reporting and Verification (MRV) system.

“Taiwan as well, which has joined to imitate the EU CBAM because they also want to have close links with the EU,” he added.

Taiwan signed a memorandum of understanding (MOU) with the European Energy Exchange (EEX) in July of this year, in a move to establish its own ETS.

“I think there has definitely been a lot of international criticism, especially from developing countries on CBAM and on the taxation,” Leah Wieczorek, Vice President of EMEA and APAC Carbon Markets at StoneX, said on the panel.

“We see a lot of countries that are now really prioritizing establishing carbon pricing, which I think is a really good thing, specifically if we look at the APAC region,” Wieczorek said.

“We see South Korea, Japan, Taiwan, China, all those countries really pushing ahead. And I think that some of the initiatives that those countries [are engaging in] are actually quite helpful,” she said.

“Specifically, for example, in South Korea or in the UAE, you see that the government has done a lot of capacity building on CBAM, where they are actually aiming to support the suppliers in really getting prepared for that,” she said.

“I think that’s really meaningful in shifting awareness to the subject,” she added.

But complexities do arise around how the charge on carbon is done in different locations.

“The proposed US Foreign Pollution Fee Act would be based on national average emissions assumptions. The EU is, at the moment, facility specific, which could create a lot of issues around re-exporting, and more broadly, for the flow of material around the world,” Patel said.

“The EU wants to avoid double charging by reducing the number of certificates required to reflect any effective carbon price already paid in the country of production. But the more different mechanisms and interpretations of carbon policy there are, the more complex it gets,” he added.

Despite this, the desire for more interconnectedness across global markets was strong on the panel.

“I think, in an ideal world, we would have carbon pricing that’s across all different kinds of jurisdictions, which then means we don’t really need a CBAM anymore, [though this] would unfortunately be a very ambitious goal,” Wieczorek said.

“The ideal world would be without CBAM – the world where there is an emissions market for everyone and everyone pays for their free externality,” Silva said.

In early September, the EU Commission launched a call for evidence on CBAM rules and methodology across three different topics, one of which was the Commission seeking inputs into the rules for importers applying for a reduction in the number of CBAM certificates required to purchase to take into account the carbon price paid in a third country.