EU: Implications of carbon border adjustment mechanism
The European Commission has proposed that a carbon border adjustment mechanism be gradually implemented.
The European Commission has proposed that a carbon border adjustment mechanism be graduall
The scope of carbon pricing initiatives accomplished through carbon taxation is increasing rapidly and is becoming a significant part of country policy strategies to achieve the nationally determined contributions under the 2015 Paris Agreement.
Carbon pricing has been around for much longer than many realize.
- Finland was the first country to introduce a carbon tax—in 1990.
- The world’s first carbon market—the European Union emission trading system—was established in 2005.
- As of 1 April 2022, 68 global carbon pricing initiatives—including both carbon taxes and emission trading systems—have been implemented.
The European Commission has proposed that a carbon border adjustment mechanism be gradually implemented, during a three-year transitional phase commencing 1 January 2023.
Beginning January 2026, importers would have to start purchasing carbon border adjustment mechanism certificates, with the number of certificates being equal to the total emissions embedded in the goods imported, reduced to account for carbon prices already paid in the country of origin and adjusted to reflect any free allowances still allocated under the EU emission trading system. Full implementation would only be achieved in 2035 when free allowances would be completely phased out.
Read an August 2022 report prepared by KPMG International
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.