EU Confirms Implementation of Climate Law Including Carbon Border Tax on Imports

The implementation of the European Union (EU)'s core climate legislation has been confirmed.

The flag of the European Union (EU) is fluttering. / Photo by Yonhap News

On the 25th (local time), the EU Council announced that it had given final approval to climate laws included in the carbon-neutral legislative package 'Fit for 55,' such as the Carbon Border Adjustment Mechanism (CBAM) and the reform of the Emissions Trading System (ETS). These laws were recently passed by the European Parliament.

The EU's Fit for 55 package aims to reduce greenhouse gas emissions by 55% compared to 1990 levels by 2030 and achieve carbon neutrality by 2050 by imposing environmental charges.

Among these, CBAM is expected to directly affect third countries including South Korea. CBAM is a measure that imposes a kind of tax on the estimated carbon emissions generated during the production process of six products exported to the EU: steel, aluminum, fertilizer, electricity, cement, and hydrogen products.

With the confirmation of the law's implementation, companies will be required to report their carbon emissions from October 1st this year until the end of December 2025. Subsequently, carbon tariffs will be gradually imposed from 2026 to 2034.

The ETS, which will serve as a guideline for tariff setting under CBAM, was also confirmed to be expanded and reformed on the same day.

The ETS aims to reduce carbon emissions in industrial sectors by 62% compared to 2005 levels by 2030. The scope of industries covered will be expanded to include maritime transport, and the 'free allocation system,' which exempts a certain level of emission allowance purchases by EU-based companies, will be phased out by 2026.

Additionally, from 2027, a new emissions trading system called ETS-II will be introduced for building heating and transport fuels. However, as the introduction of ETS-II is expected to lead to future heating cost increases, the EU has decided to establish a Social Climate Fund (SCF) worth 65 billion euros (approximately 95.8 trillion KRW) to support energy-vulnerable households and small and medium-sized enterprises.

The SCF will mainly be funded by revenues generated from the implementation of the ETS and will be used to provide temporary support to each member state from 2026 to 2032.