Closing the carbon borders with CBAM

Printers will need to be mindful of their future emissions and will need to stay compliant with new carbon levys in both the European Union and UK.

The EU’s carbon border adjustment mechanism (CBAM) will apply a carbon levy on imports of certain goods from outside the bloc. These goods from energy-intensive industries include iron, steel, cement, aluminium, fertilisers, and hydrogen.

Importers must pay any difference between the carbon price paid in the country of the goods’ origin and the price of carbon allowances levied under the EU’s emissions trading system. 

The levy is intended to ensure these carbon-intensive products face a comparable carbon price to homegrown products and are traded without unfair advantage.

The EU’s CBAM will be phased in from 2026. In addition, the UK will also implement a carbon import levy on some products from 2027 to help protect businesses against cheaper imports from countries with less strict climate policies. In fact, it has gone further than the EU by including glass and ceramics but decided against including electricity.

A fairer game

The CBAM hopes to eliminate imbalances, typified by a comparison with China: Britain's benchmark emissions trading scheme (ETS) carbon contract currently trades around £36.60 pounds ($46.34) per metric ton while contracts in China’s ETS trade around 71.60 yuan ($10.04) a ton.

Carbon leakage has been described as a ‘lose-lose scenario’, in which European economies lose competitiveness, but global carbon emissions remain the same

Over time, it is expected that CBAMs will cover more goods and more complex products, and that other jurisdictions will follow the EU and UK examples: for example, the US is developing a Clean Competition Act covering 25 trade sectors, in which tariffs would be payable on the difference between actual emissions and US baseline emissions.

The UK CBAM will apply to scope 1, scope 2 and select precursor product emissions. Scope 1 emissions relate to direct activities controlled by an organisation and scope 2 applies to a firm’s consumption of purchased electricity, heat, steam, and cooling. But the time lag between the EU’s CBAM and the UK’s is “deeply concerning” according to the director-general of UK Steel. High-emissions products, diverted from export to the EU, could be dumped in the UK.

Why a CBAM?

Both CBAMs are intended to combat ‘carbon leakage’ – which occurs when industries move production to countries with less rigid greenhouse gas emissions rules. This offshoring of emissions is caused by asymmetries in emissions legislation around the world. In Europe, businesses fear being undercut by foreign competition, which reduces prices, eats away at profit margins and sends investors looking for more promising opportunities abroad. Carbon leakage has been described as a ‘lose-lose scenario’, in which European economies lose competitiveness, but global carbon emissions remain the same. 

The hope is that a wave of quantification and certification will happen over the world as exporters try to avoid paying money to the EU that they could pay in their own countries. The EU will essentially export its carbon levy to the rest of the world, incentivising other nations to find ways to reduce their own carbon footprints. The downside to this is that developing nations, with smaller incomes, and which need more time to clean up their infrastructure, will be penalised. 

Who will be affected by CBAM? EU and UK importers will be required to report upstream emissions for relevant imported goods and purchase carbon certificates; foreign producers selling into Europe will also have to report and record; and European firms who utilise CBAM-covered goods may experience an increase in the cost of input materials. The countries that will be most affected by CBAM are Russia, China, Turkey, Ukraine and those in the Balkans, as well as Mozambique, Zimbabwe and Cameroon. 

CBAM for printers

What does this mean for printers, and all businesses who import certain goods? Firstly, CBAM is expected to extend and cover a wider range of industry sectors than the especially polluting ones at present. Printers who import need to assess and optimise their supply chain management and ensure all their procurement processes are sustainable. Secondly, there is no escape from carbon accounting, the CBAM suggest that those printers who are not already precisely mapping emissions across the lifecycle of their products may experience trouble with regulators. But those who confront the challenge of offering verified low-carbon products are likely to establish a strong competitive advantage now and in the future.