The Carbon Border Adjustment Mechanism (CBAM) is poised to be a beneficiary of the new European Commission’s aim to simplify its reporting obligations. According to the Financial Times in its interview with the European Commissioner for Climate Action [1], Wopke Hoekstra, the EU is exploring options to exempt a significant number of EU companies from the carbon border tax. Citing that “less than 20 per cent of companies in scope are responsible for more than 95 per cent of emissions in products”. If implemented, the changes will effectively limit the CBAM to large importers. It is expected that the new proposal will exempt between 180,000 and 200,000 companies in the EU from the reporting requirement. 

What is the Carbon Border Tax Mechanism?

The mechanism is designed to ensure that the carbon price of imports into the EU is equivalent to the carbon price of domestic production. As it is the first of its kind in the world and no other country has a system similar to the EU’s CBAM, the carbon reporting and tax is highly controversial. It has created an onerous reporting process, which has implications for the country’s international trading partners. The CBAM came into force in May 2023 and is currently in its transitional phase, which runs from 2023 to 2025. It currently covers cement, iron and steel, aluminium, fertilisers, electricity and hydrogen. However, the new EU climate commissioner has indicated that a review of these industries is planned for this year. 

For more detailed information on the individual sectors covered by the CBAM, please refer to the EU website for CBAM here.

How does this affect ASEAN? 

It remains to be seen how this exemption will affect ASEAN companies in the affected sectors. It will be largely dependent on who ASEAN companies will export to. Companies exporting to small importers may find themselves an unexpected beneficiary while companies trading with big importers from the EU will unfortunately not be affected by these changes. 

Follow us as ASEANcham will continue to monitor the situation and keep you updated.  

[1] https://www.ft.com/content/c6102135-eefa-488f-81c2-4aa8eaf95644