[News Terms] Ssibam, Pay Carbon Tax? 'Carbon Border Adjustment Mechanism (CBAM)'

“Ssibam” is the English abbreviation for the Carbon Border Adjustment Mechanism (CBAM). There is no exact Korean spelling yet. The National Institute of the Korean Language advised to follow common usage. In Europe, it is mainly pronounced as “Ssibam,” while in English-speaking countries, it is often pronounced as “Ssibaem” or “Ssibiem.” In Korea, the emphasis is on the expletive “ssi-,” whereas in English-speaking countries, the emphasis is on the exclamation “-baem.” In a video explaining the Carbon Border Adjustment Mechanism by The Australia Institute, an Australian public policy think tank, the male and female hosts once burst out laughing while pronouncing it. Ssibam, what exactly is this?

The entire world is suffering from abnormal weather due to global warming. Photo by Kang Jin-hyung aymsdream@

The European Union (EU) CBAM is a system that imposes a carbon tax on companies exporting to the EU based on the amount of carbon emissions generated during the production process of their products. It applies to six categories: steel, aluminum, fertilizer, hydrogen, cement, and electricity. CBAM is part of the EU’s “Green Deal” policy. The European Green Deal is an environmental policy aiming for “carbon neutrality,” meaning net zero carbon emissions within the region by 2050. It was announced by the European Commission in December 2019. The EU is serious about the climate crisis and environmental sustainability.

As carbon emissions caused by humans have been identified as the main cause of global warming, eco-friendly policies have become essential for countries worldwide. Although the world has agreed to reduce carbon emissions, each country’s carbon reduction targets differ. “Carbon leakage” occurs as a result. Carbon leakage refers to ▲the relocation of production facilities from countries with strict carbon emission regulations to countries with relatively lax regulations, and ▲the replacement of EU domestic products, which have higher production costs due to carbon regulations and thus lower price competitiveness, with cheaper imported products from outside the EU.

CBAM was introduced to prevent carbon leakage. CBAM imposes an additional tariff on imported products from outside the EU at a level equivalent to the carbon cost of EU domestic products. As a result, both products bear equal carbon costs, reducing the risk of carbon leakage. Simply put, it is similar to a restaurant charging an environmental surcharge. If a customer leaves too much raw meat or side dishes uneaten, the restaurant owner charges an environmental fee to compensate for the loss and prevent waste. Of course, in the case of restaurants, this is not a legal obligation.

Carbon Border Adjustment Mechanism (CBAM) / Photo by Ho-kyung Choi hocance@

CBAM will be fully implemented starting in 2026. From then on, domestic exporters will be required to report the “embedded emissions” of CBAM-targeted products when exporting to the EU. Embedded emissions refer to the amount of carbon emitted during product manufacturing. Additionally, exporters must purchase CBAM certificates corresponding to the embedded emissions and submit them to importers within the EU. One certificate offsets one ton of carbon emissions. However, carbon costs prepaid in countries outside the EU can be deducted from the required number of CBAM certificates. The next two years, including this year and next, will be a transition period during which only reporting obligations apply.

The government and domestic exporters are currently not in a position to laugh. Starting this year, the government has launched a “CBAM Response Infrastructure Support Project” targeting small and medium-sized enterprises (SMEs) exporting to the EU and is taking proactive measures. SMEs struggling with carbon emissions reporting will be selected and supported through one-on-one consulting on carbon emissions calculation and future carbon reduction plans, helping domestic exporters reduce their carbon tax burden.