The Frontier Carbon Adjustment Mechanism (CBAM) and carbon credits are revolutionizing sustainable trade, offering a new approach to reducing global emissions. By integrating these tools, the European Union seeks to level the playing field, ensuring imported products meet the same rigorous environmental standards as domestic products. This new paradigm not only promotes sustainability, but also encourages greener and more conscious business practices. Discover how CBAM and carbon credits are shaping the future of international trade and driving the global sustainability agenda.
CBAM
The Frontier Carbon Adjustment Mechanism (CBAM) is an initiative of the European Union (EU) designed to reduce greenhouse gas emissions (GEE) associated with the import of products. The main objective of CBAM is to prevent “carbon leak”, which occurs when carbon-intensive industries migrate to regions with less stringent environmental regulations.
Scope of CBAM
CBAM initially covers sectors such as iron and steel, aluminum, cement, fertilizers, electricity and hydrogen. These sectors were chosen due to their high carbon intensity and risk of carbon leakage. Full implementation of CBAM is scheduled for 2026.
Full Application Expectation
The expectation is that CBAM will capture more than 50% of GHG emissions in sectors covered by the Emissions Trading System (ETS) of the EU when fully implemented. The transition phase began in October 2023, with mandatory quarterly reports for importers. From 2026, importers will need to purchase CBAM certificates that represent the amount of GHG emissions embodied in imported products.
The CBAM is an ambitious measure that aims to encourage more sustainable practices globally and align the EU's climate policies with its climate neutrality goals by 2050.
Carbon Credits
Carbon credits are certificates that represent the removal or reduction of one ton of carbon dioxide (CO2) or other greenhouse gases from the atmosphere. They are generated by projects that avoid or offset CO2 emissions, such as the use of renewable energy, energy efficiency and reforestation.
Regulated Carbon Credit Market
A regulated carbon credit market is one that is supervised by a government or international organization. These markets have specific rules and regulations to ensure the integrity and transparency of transactions. An example is the European Union Emissions Trading System (EU ETS), which is the largest regulated carbon market in the world. It covers approx. 11.000 industrial facilities and airports in the European Union and limits the amount of emissions these facilities can release.
Voluntary Carbon Credits Market
In contrast, a voluntary carbon credit market allows companies and individuals to voluntarily purchase carbon credits to offset their own emissions. These markets are not regulated by specific laws, but rather by standards and certifications that guarantee the quality of credits. One example is the Verified Carbon Standard (VCS), which is one of the most recognized standards for voluntary carbon credits.
Examples of Initiatives
- Amazonas Sustainable Foundation Project (FAS): This project in Brazil aims to conserve and restore tropical forests in the Amazon, generating carbon credits through reforestation and protection of degraded areas.
- Microsoft and re.green: Microsoft signed a contract with Brazilian reforestation company re.green to purchase 3 million carbon credits over 15 years old, generated by the restoration of native vegetation in degraded pasture areas.
- Belterra and Amazon: Brazilian startup Belterra signed a contract with Amazon to generate carbon credits through the implementation of agroforestry in 3.000 hectares in Pará.
biO3 Meio Ambiente has consultants and expertise to help organizations adapt to CBAM legislation or any other regulated market and also assist at all stages, from conception or project, through registration and until the issuance of credits.
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