Key Points and Implications of the EU Carbon Border Adjustment Mechanism Legislative Proposal
|Author||Lim, Soyoung; Yang, Jooyoung||Date||2021.07.23||Issue No||119|
○On July 14, 2021, the European Commission announced its Fit for 55 package to reach the EU’s climate target of cutting emissions by 55 percent by 2030. A Carbon Border Adjustment Mechanism (CBAM) legislative proposal was introduced as part of this package.
○The CBAM proposal includes details for execution and outlines a phased implementation following a transition period.
- The proposal describes the mechanism and scope of CBAM, emissions calculation methods, and exclusions.
- It follows the method by which Emissions Trading Schemes (ETS) operate for EU importers. During a transitional phase, imports must be accompanied by a mandatory reporting of carbon data. Starting in 2026, following the conclusion of a transitional period, importers will be required to buy certificates with carbon prices determined by the EU ETS.
- The data reported during the transitional phase prior to 2026 is expected to enhance the effectiveness of policy implementation.
○Beginning with the EU in 2005, governments had have launched ETS at various levels, from the municipal to the national level.
- Korea launched its own national ETS in 2015, and is currently implementing the planning phase.
- The United States and Japan have regional emissions trading schemes in place and China will launch a national ETS this year.
○While different countries are responding in disparate ways to the EU CBAM, Korea needs to prepare a forward-looking, strategic response to the proposal based on Korea’s domestic import and export structure and its climate change policy.
- Through an examination of Korea’s domestic ETS and an identification of the country’s strengths we must find ways to minimize the potentially negative impacts of ETS on our domestic industries.
- In the longer term, we must preemptively address the potential for carbon leakage along the global supply chain by fostering enhanced capabilities at small- and medium-sized subcontractor enterprises (SMEs) through technological innovation and investment. In addition, we must strengthen carbon data collection and improve system development focused on supply chain considerations.