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Opinion – The US and the impact of the EU Carbon Border Adjustment Mechanism

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In July 2021, the European Commission (Commission) introduced a Carbon Border Adjustment Mechanism (CBAM) in support of the European climate targets, which is to reduce 55% of carbon emissions compared to 1990 levels by 2030 and to become climate-neutral.

The EU characterizes the CBAM as a climate measure that contributes to preventing the risk of carbon leakage, while emphasizing that it is compatible with World Trade Organization’s (WTO) rules. The CBAM is based on the purchase of certificates by EU importers and the price of the certificates will be calculated based on the weekly average auction price of EU ETS allowances. However, the CBAM will initially apply only to the following sectors: cement, iron and steel, aluminium, fertilizers and electricity from 2023. During the transitional period (2023-2025), EU importers must correctly report the embedded emissions. From 2026, the CBAM fully enters into force with financial obligation to purchase CBAM certificates.

The US response to the EU CBAM proposal until now was friendly, but not enthusiastic. Even before the Commission announced the CBAM proposal, the US already raised its concerns about the mechanism both at the WTO Market Access Committee, and the Trade and Environment Committee in 2020. In particular, the US (and several other WTO Members) stressed that the CBAM must be consistent with WTO rules........

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