Implications of the EU carbon border adjustment mechanism (“CBAM”) for Switzerland
On 14 July 2021, the European Commission (“Commission”) published its proposal for a regulation establishing a carbon border adjustment mechanism (“CBAM proposal”).
The EU CBAM will put a price on carbon embedded in certain imported products and is conceived as a measure against the risk of carbon leakage. That risk could arise if EU companies move their production abroad to avoid the costs of paying for carbon domestically (i.e. under the EU Emissions Trading System (“EU ETS”)) or import cheaper foreign products that are not subject to a carbon price in their country of production. The EU CBAM thus aims not only at preventing the risk of carbon leakage, but also at ensuring a level playing field for domestic and imported products.
The CBAM proposal initially targets five sectors – aluminium, cement, electricity, fertilisers as well as iron and steel. In addition, as proposed by the European Parliament (“EP”), it could potentially also apply to hydrogen, organic chemicals and plastics. In the long run, its scope will be gradually expanded to other sectors covered by the EU ETS, such as glass, ceramics and synthetic rubber.