EU approves CBAM carbon pricing for imported goods including hydrogen

The Carbon Border Adjustment Mechanism (CBAM), which seeks to assign a reasonable price to carbon released during the production of imported goods, including hydrogen, was agreed upon by the European Parliament and Council.

According to the agreement, the CBAM will initially apply to imports of specific products and chosen precursors, including cement, iron and steel, aluminum, fertilizers, energy, and hydrogen, whose manufacturing is carbon-intensive and most at risk of carbon leakage.

In order to ensure that the carbon price of imports is equal to the carbon price of local production, the CBAM is expected to ensure that the price for embedded carbon emissions created in the manufacturing of specific items imported into the EU.

The modification of the EU Emission Trading System (ETS), whose negotiations are anticipated to begin this week and which is intended to coincide with the phase-out of free allowances under the CBAM and help the decarbonization of EU industry, is planned to complement the accord.

Following the implementation of the permanent system, importers will be required to report annually the volume of merchandise brought into the EU the previous year as well as the embedded greenhouse gas (GHG) emissions.

It is hoped that the new pricing tool, if fully phased in, will capture more than 50% of the emissions of the ETS covered sectors. The CBAM is scheduled to begin the first phase of its transitional entry on October 1, 2023.

Hydrogen Europe has stated that the CBAM “fails to examine several crucial factors for the well-designed coverage of hydrogen” despite the fact that it has welcomed the carbon pricing instrument. According to the group, a “significant share” of the REPowerEU plan’s 10 million tonnes of renewable hydrogen imports into the EU by 2030 will be transported via hydrogen carriers.

According to Hydrogen Europe, the European Commission should follow up on the agreement by supplying more information about the effects on imports of hydrogen and its carriers into the EU, the availability of free allowances for low-carbon hydrogen production, and the employment situation in the hydrogen sector.