Go to the Mian menu
Go to the Mian menu

i-KIET Issues & AnalysisKIET Korea Institute for Industrial Economics and Trade

  • home
  • Publications
  • i-KIET Issues & Analysis

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
File File down load 

○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.