As the European Union (EU) nears the adoption of the final implementing rules for its Carbon Border Adjustment Mechanism (CBAM), the implications for global entities in impacted sectors are slowly coming into focus. The CBAM, designed to level the playing field for EU industries by placing a price on the embedded carbon emissions of certain imported goods, has prompted global responses and is now moving into its decisive regulatory phase.
Recent developments indicate that the remaining rules necessary for the mechanism's operation are expected to be finalized soon. EU member states are scheduled to vote in mid-November on key implementing acts. Following this, proposals aimed at strengthening the framework including measures to combat circumvention, revise electricity rules, and potentially extend the CBAM to supply chains in existing sectors are anticipated in early December.
These key votes will determine crucial operational details, such as the required reporting methods for imported goods, the conditions for accrediting verifiers of carbon emissions data, the mechanism for recognizing carbon prices paid in third countries, and the precise pricing of CBAM certificates.
The finalization of CBAM's rules on how the EU will credit carbon prices paid in third countries remains to be on top of mind for Canadian entities. Canada's industrial sectors currently operate under the patchwork of federal and provincial pricing mechanisms.
Canada’s 2025 Federal Budget
The 2025 Federal Budget aims to address this issue within its Climate Competitiveness Strategy, which signals a commitment to strengthening Canada's industrial carbon pricing system. The budget committed to “harmonizing” the system across the country by improving the federal benchmark and the federal backstop. It also mentioned the upcoming 2026 interim review of the federal benchmark which will play a role in shaping Canada’s carbon pricing framework and developing a price trajectory for industrial carbon pricing that would extend beyond 2030. This is intended to provide the necessary certainty for Canadian businesses to make large-scale, low-carbon investments and better compete in a global market defined by mechanisms such as the EU CBAM.
Read: Climate Priorities in Budget 2025: Building a Competitive, Low-Carbon Economy
Earlier this year, Mark Carney’s campaign signaled the need for Canada’s own CBAM to protect the competitiveness of its domestic industry and create fair competition. However, this was not mentioned in the Climate Competitiveness Strategy indicating that there are no immediate plans for it and the focus will instead be on items such as strengthening Canada’s existing carbon markets and boosting clean economy investment through tax credits.
Forward Outlook
Looking ahead, the EU is not yet finished. In addition to these simplifications, EU member states are moving to adopt further implementing acts this month that will clarify technical details, such as reporting methodologies and how to address circumvention. Proposals to potentially extend the CBAM’s scope to supply chains in existing sectors are also expected in early December.
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