The Carbon Border Adjustment Mechanism will generate billions of euros in taxes for Brussels' general budget. But not just yet.
The European Union launched on Sunday the initial phase of the world's first system to impose CO2 emissions tariffs on carbon-intensive imports like iron and steel, as it tries to stop more polluting foreign products from undermining its green transition.
The planned tariff has caused disquiet among trading partners, and at a forum last month, China's top climate envoy Xie Zhenhua urged countries not to resort to unilateral measures such as the EU levy.
The European Commission says the border levy is in line with World Trade Organization rules in that it treats foreign and domestic firms alike and allows deductions from the border fees for any carbon prices already paid abroad.
How is the border tariff going to work?
The bloc will not begin collecting any CO2 emission charges at the border until 2026.
The newly-launched first phase of the Carbon Border Adjustment Mechanism (CBAM) means that from now on, European importers will have to report the greenhouse gas emissions linked to the production process of imported products including iron, steel, cement, aluminium, fertilisers, electricity and even hydrogen.
From 2026, if the emissions exceed the European standard, the importers will have to acquire an "emission certificate" for the price of CO2 in the EU.
If a carbon market exists in the exporting country, it will only pay the difference.
Carbon markets are set up for companies or individuals to be able to compensate for their greenhouse gas emissions by purchasing carbon credits from entities that remove or reduce greenhouse gas emissions.
How will this affect the European economy?
Importers purchasing these certificates from 2026 will help to put foreign producers on a level footing with EU industries that must buy permits from the EU carbon market when they pollute.
European Economy Commissioner Paolo Gentiloni said the aim was to encourage a worldwide shift to greener production and to prevent European manufacturers from relocating to countries with lower environmental standards.
It is also meant to prevent them from losing out to foreign competitors while they invest in contributing to meeting EU targets to cut the bloc's net emissions by 55% by 2030 from 1990 levels.
Companies in the European Union, the UK and Ukraine have told Reuters they expect little initial impact during the trial phase.
"CBAM is not about trade protection. It is about protecting the EU's climate ambition – and seeking to raise the level of climate ambition worldwide," Gentiloni told Reuters.
European steel industry association Eurofer, which has been at the forefront of those in Europe seeking a border tariff, said the initial phase would test how watertight CBAM is at avoiding industrial production shifting abroad to countries with less ambitious climate policies.