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Introduction of carbon border tax imminent

The EU has reached an agreement on the introduction of a carbon border adjustment mechanism. The purpose is to level the prices of products subject to carbon fees (allowances) within the EU with the prices of comparable goods imported from outside the EU.

The carbon border tax will apply to cement, aluminium, fertilisers, electricity generation, hydrogen, iron and steel, as well as their compounds and selected downstream products such as bolts and screws.

According to the current legislative proposal, only entities using an authorised declarant established in the EU will be entitled to import goods subject to carbon border adjustment mechanism into the EU. These declarants will then submit declarations containing information on the imported goods on an annual basis.

Companies importing the specified products will be subject to a reporting obligation from October 2023. Currently, there is a system of emission allowances allocated free of charge for these productions to prevent the transfer of the production of these products outside the EU. However, these emission allowances will gradually be subject to charges over the next few years, and from 2026 the carbon border tax will serve as the tool to prevent the transfer of production outside the EU.

In 2034, the free-of-charge allocation of emission allowances is expected to end, and full charging for imports to begin. The specified products will thus be subject to the same burden regardless of whether they have been manufactured in the EU or imported, in compliance with World Trade Organisation rules.

The publication of the final version of the related legislation is expected shortly.