Carbon border adjustment mechanism

Regulation (EU) 2023/956 of May 10, 2023: the Union establishes the carbon border adjustment mechanism, with a transitional reporting period opening on October 1, 2023 and the definitive regime taking effect on January 1, 2026. The problem it addresses is as old as the carbon market. An emissions cap applied to a single territory pushes production elsewhere and imports in: carbon leakage cancels the climate effect while destroying local activity. Importers therefore buy certificates matching the emissions embedded in the good, less any carbon price already paid in the country of origin. Scope starts with the most carbon-intensive and most traded products: cement, iron and steel, aluminum, fertilizers, electricity and hydrogen. There the mechanism gradually replaces the free allocation those sectors enjoyed. Starting with reporting only was deliberate: measuring embedded emissions is the real difficulty of the scheme, and it had to be tested before it was billed. In trade credit insurance and supply chain cover, the cost of certificates becomes an import charge, and a wrong estimate is enough to unbalance a long-term supply contract.