A new carbon regulation entered into force last weekend. The Carbon Border Adjustment Mechanism (CBAM) was adopted last year by the European Union with the aim of ensuring that “the carbon price of imports is equivalent to the carbon price of domestic production.”

The CBAM started on October 1 with a transitional phase. During this period, the EU’s trading partners will have to report emissions related to the production of imported volumes of iron and steel, aluminum, cement, electricity, fertilizers, and hydrogen.

Following the three-year transition period, importers will need to declare by 31 May, the quantity of the products and their embedded emissions. The corresponding number of CBAM certificates must be surrendered to the Commission while the price for each certificate will be determined “depending on the weekly average auction price of EU ETS allowances.”

Among others, CBAM is also meant to prevent the risk of carbon leakage. Over the period of eight years, starting in 2026, the mechanism will gradually replace the free allocations under the EU ETS to ensure compatibility with WTO rules and principles and avoid double protection for EU industries.

“CBAM is not about trade protection. It is about protecting the EU’s climate ambition – and seeking to raise the level of climate ambition worldwide,” said European Economy Commissioner Paolo Gentiloni, quoted by Reuters.