Worldwide: Webinar: Luther Reset Series: Green Tax - Carbon Border Tax

In December 2019, the European Commission adopted its Communication on the European Green Deal. The key measures envisaged include the proposal for a so-called "Carbon Border Adjustment Mechanism" – or CBAM for short – for selected sectors, scheduled for 2021 in the context of a re-newal of the Energy Tax Directive.

The introduction of a CBAM is particularly important for non-EU companies as well as EU-companies with operations outside the EU.

The background of the planned CBAM is as follows: goods produced outside the EU are most often subject to less stringent environmental standards. As a consequence, the threat of so-called "carbon leakage" arises – meaning the relocation of production facilities to countries outside the EU with less ambitious climate targets.

A CBAM is supposed to reflect the carbon content of the product by putting an additional price tag on imported goods. This means a cost increase related to CO₂ and CO₂-equivalent emissions primarily for products that are produced outside the EU but sold in the European market.

The most likely form of a CBAM is currently a tax. Such a carbon border tax is aimed at serving cli-mate protection and counteracting the aforementioned "carbon leakage". Furthermor, the tax offers trade policy protection for production sites in the EU – with possible implications under WTO rules.

For companies affected, the CBAM or carbon border tax is already now strategically relevant under the following aspects:

– Which sectors are covered by the carbon border tax?
– How is the amount of the carbon border tax calculated?
– What possibilities exist for relief or exemption from the carbon border tax?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.