Understanding CBAM: Basics, Implementation, and Common Misconceptions

The Carbon Border Adjustment Mechanism (CBAM) is a targeted regulatory measure by the European Union aimed specifically at certain carbon-intensive products imported into the EU, including cement, iron, steel, aluminium, fertilisers, electricity, and hydrogen.

This mechanism is designed to levy charges based on the carbon intensity of these products and will expand over time, working alongside the EU's emissions trading system (ETS).

Currently, during the transitional phase leading up to 2026, no fees are imposed; however, exporters must report their direct and indirect emissions quarterly, which poses significant administrative challenges, especially for countries like South Africa with high carbon intensity in production.

Once the transitional phase ends, charges will mainly be applied to direct emissions for most products, although this remains subject to review.

CBAM will always operate in conjunction with the EU ETS, where local producers currently receive free allowances for emissions. As these allowances are phased out, CBAM will be phased in to ensure a level playing field for EU industries.

The regulatory landscape remains uncertain, with the potential for additional products to be included in the future, emphasising the need for accurate reporting and compliance from exporters.