How does the Carbon Border Adjustment Mechanism (CBAM) interact with the EU Emissions Trading System (ETS)?
1 Answer
Anonymous User
The EU Emissions Trading System (ETS) is a pioneering global initiative to combat climate change, imposing limits on greenhouse gas emissions from power and industrial sectors. While industries receive some free allowances, the CBAM will gradually complement this by introducing financial adjustments.
As free allowances decrease over time, CBAM sectors will experience a faster decline from 2026, aligning with the EU’s ambitious climate targets. CBAM operates differently from ETS, allowing the purchase of unlimited certificates but mirroring ETS allowance prices. When fully operational in 2026, CBAM will adjust alongside changes in the EU ETS, particularly regarding reduced free allowances for covered sectors. Until 2034, CBAM will only target emissions not covered by free allowances, ensuring fair treatment for importers vis-a-vis EU producers.