Members of the European Parliament voted to pass Carbon Border Adjustment Mechanism (CBAM) on April 18 to further boost non EU countries’ ambition and regulate market behavior to realize climate goals.
The bill was passed with 487 votes in favor, 81 votes against, and 75 abstentions. This mechanism is designed to provide incentives for non-EU countries to increase their climate ambitions and to ensure that EU and global climate efforts are not undermined by the shift of production from the EU to countries with less ambitious policies.
The products covered by CBAM include iron, steel, cement, aluminum, fertilizers, electricity, hydrogen, and indirect emissions under specific conditions. The importers of these products must pay the difference between the carbon price paid by the producing country and the carbon quota price in the EU Emissions Trading System (ETS).
CBAM will be gradually implemented from 2026 to 2034, at the same pace as the gradual elimination of free quotas in the EU ETS.
In addition, the reform of EU ETS was passed with 413 votes in favor, 167 votes against, and 57 abstentions. By 2030, all sectors covered by ETS must reduce greenhouse gas emissions by 62% compared to 2005 levels. It also gradually abolished free quotas for companies from 2026 to 2034 and created a separate new trading system (ETS II) for road transportation fuels and buildings, which will price greenhouse gas emissions for these industries in 2027 (or 2028 if energy prices are abnormally high).
The European Parliament also voted for the first time to include greenhouse gas emissions from the maritime sector in ETS (500 votes to 131, with 11 abstentions), and agreed to revise the aviation sector emissions trading system (463 votes to 117, with 64 abstentions). This will gradually eliminate the free quota for the aviation sector by 2026, and promote the sustainable use of aviation fuel.