EU launches first phase of world's first carbon border tariff

The European Union inaugurated the first phase of the world’s first system of imposing CO2 emissions levies on imported steel, cement, and other commodities on Sunday, in an effort to prevent more polluting foreign items from undercutting its green transition.

The anticipated tax has alarmed trading partners, and at a recent meeting, China’s top climate envoy, Xie Zhenhua, warned countries not to resort to unilateral measures like the EU fee.

The EU will not start collecting CO2 emissions taxes at the border until 2026.

However, on Sunday, the first phase of the Carbon Border Adjustment Mechanism (CBAM) will begin, with EU importers required to disclose the greenhouse gas emissions buried in the production of imported amounts of iron and steel, aluminium, cement, power, fertilisers and hydrogen.

Importers will be required to acquire certificates to cover these CO2 emissions beginning in 2026, putting foreign manufacturers on a par with EU businesses that must purchase permits from the EU carbon market when they pollute.

The goal, according to European Economy Commissioner Paolo Gentiloni, is to stimulate a global move to greener production and to prevent European industries from migrating to nations with weaker environmental regulations.

It is also meant to prevent them from losing out to foreign competitors while they invest to contribute to meeting EU targets to cut the bloc’s net emissions by 55% by 2030 from 1990 levels.

Companies in the European Union, Britain and Ukraine have told Reuters they expect little initial impact during the trial phase.

The European Commission says the border levy is in line with World Trade Organization rules in that it treats foreign and domestic firms alike and allows deductions from the border fees for any carbon prices already paid abroad.

“CBAM is not about trade protection. It is about protecting the EU’s climate ambition – and seeking to raise the level of climate ambition worldwide,” Gentiloni said in written responses to Reuters’ questions.

European steel industry association Eurofer, which has been at the forefront of those in Europe seeking a border tariff, said the initial phase would test how watertight CBAM is at avoiding industrial production shifting abroad to countries with less ambitious climate policies.

Among Europe’s significant trade partners, China’s foreign ministry, Turkey’s trade ministry and a U.S. official declined to comment on the launch.