Article: The Tax Strategy Group – Carbon Border Adjustment Mechanism (CBAM)

In its ‘Fit for 55 programme’, the EU has committed to achieving carbon neutrality by 2050 and for a 50% reduction in CO₂ emissions by 2030.

Given moving towards carbon neutrality means ever more stringent controls and measures being introduced in the EU, there is concern about ‘carbon leakage’. The carbon leakage concept can be explained as purchase of products with a high energy input from jurisdictions with less rigorous CO₂ emission reduction programmes than the EU. In such a scenario, an industrial process which emits a lot of carbon may be moved from the EU to a jurisdiction whose environmental laws have not been developed in order to avoid expensive EU penalties. Furthermore, without CBAM measures in place, imports from jurisdictions with less onerous environmental standards could be produced more cheaply and would have a competitive advantage in the EU market. Thus, the benefit of the environmental measures being introduced in the EU would be greatly undermined.

Source BDO

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