Government Finalizes Approval of EU Carbon Border Adjustment Mechanism... "Minimizing Burden on Our Companies"

by Lee Dongwoo

Published 26 Apr.2023 07:50(KST)

Priority Application for Six Industries Including Steel, Aluminum, and Cement

From October, offshore companies exporting major product groups such as steel and aluminum to the European Union (EU) will be required to report their carbon emissions. Starting in 2026, the so-called 'carbon border tax' on these products will be fully implemented.

On the 26th, the Ministry of Trade, Industry and Energy announced that the EU Council had finalized approval of the 'EU Carbon Border Adjustment Mechanism (CBAM) legislation' the previous afternoon. This Council meeting officially ratified the political agreement reached last December among the EU Commission, European Parliament, and the Council. The Ministry stated that the approval process was completed in the European Parliament on April 18 (local time), and following the Council’s decision, the CBAM legislation will take effect the day after its publication in the official gazette. The EU plans to establish detailed provisions such as the method for calculating carbon emissions by product and the reduction method for CBAM certificates through subsequent implementing legislation.

The EU’s CBAM will initially apply to six sectors: steel, aluminum, cement, fertilizer, hydrogen, and others. Korean companies exporting these products to the EU must purchase CBAM certificates equivalent to the embedded carbon emissions in their imports through importers located in the EU and submit them to EU authorities. To prevent discrimination against exporting companies, the EU will reduce the CBAM certificates by considering the carbon prices already paid. From October 1 this year to December 31, 2025, there will be a transition period during which exporters are only obligated to report emissions; the full obligation to purchase CBAM certificates will begin on January 1, 2026.

The government has formed a CBAM response consultative body with the industry to develop response strategies and has actively engaged in consultations with the EU through bilateral channels (such as the Korea-EU Free Trade Agreement (FTA) implementation channel and high-level meetings) and multilateral trade channels (such as regular WTO meetings). In December last year, Trade Negotiations Director General Andeok Geun visited the EU and met with officials from the EU Commission and European Parliament, urging that the EU CBAM not be applied in a discriminatory manner to Korean exporters and emphasizing that the mechanism should comply with international trade rules such as the WTO and FTAs.

Going forward, the government plans to maintain close communication with the industry during the EU’s implementing legislation process and continue consultations with the EU to minimize the burden on Korean companies. To prepare for the reporting obligations starting this October, explanatory sessions and training for practitioners will be conducted to enhance the industry’s response capabilities. The Ministry of Trade, Industry and Energy stated, "We plan to actively support the development of low-carbon technologies and the establishment of domestic carbon emission-related infrastructure to facilitate the transition of key industries such as steel to a low-carbon industrial structure, turning the pursuit of carbon neutrality into an opportunity."

[Image source=Yonhap News]