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On October 1, 2023, the European Union’s Carbon Border Adjustment Mechanism (CBAM) became effective in its transitional phase until December 31, 2025. The European Commission (EC) noted that the transitional phase will serve as a pilot and learning period for stakeholders and will be used to collect information on embedded emissions to further refine and improve the CBAM’s methodology. We expect other countries to consider and adopt their own border carbon adjustments to avoid carbon leakage and to ensure the competitiveness of domestic emission intensive and trade exposed sectors of the economy (see our earlier bulletins on the development of BCAs in Canada and USA). This bulletin briefly highlights key information related to the transitional phase of the CBAM. CBAM Overview. The CBAM applies to importers of CBAM-covered goods. Importers of covered goods must register with national authorities, through which they will also able to buy CBAM certificates once the CBAM is fully in place on January 1, 2026. The price of certificates will be calculated depending on the weekly average auction price of EU Emission Trading System (ETS) allowances expressed in €/tonne of CO2 emitted. Importers into the EU are required to declare the direct and indirect emissions embedded in imports and, once fully operational, “surrender” the corresponding number of CBAM certificates each year; however, initially, importers will only be required to pay for direct emissions. Importers may reduce the number of certificates to be surrendered if they can prove that a carbon price has already been paid during the production of the imported goods and this price will then be deducted from the overall obligation. Applicability The CBAM will initially apply to the following imports of certain goods and selected precursors that are carbon intensive and at significant risk of carbon leakage: cement; iron and steel; aluminium; fertilisers; electricity; and hydrogen. The EC noted that…

The Globe and Mail reports on growing support in Europe for withdrawing from the Energy Charter Treaty (ECT) as the threat of multibillion-euro lawsuits by fossil fuel investors intensifies. The increasing costs associated with claims under the ECT may also put the ambitions of the Paris Agreement at risk if signatories choose to allow fossil fuel companies to continue to emit greenhouse gases (GHGs) instead of paying compensation for lost investments.   The ECT was drafted and signed, as the Soviet Union was dissolving, to protect European energy firms entering Russia and former Soviet Republics. The intent of the ECT was to allow investors to sue governments for policies affecting their new investments. The ECT is quickly becoming a vehicle for claims by fossil fuel companies to attempt to recoup losses from their investments as a result of climate action and the decarbonization of economies across Europe. It is estimated that claims brought by fossil fuel companies seeking compensation for climate policies could reach €1.3 trillion by 2050. Remaining subject to the compensation mechanism of the ECT could result in large payouts to fossil fuel companies unless countries choose to allow them to continue to emit GHGs for at least another decade under the terms of the ECT.   Four claims have already been brought under the compensation mechanism of the ECT, with a combined total of more than €2.5B.  A similar claim, against the US government for $15B USD, was brought by TC Energy for the cancellation of the Keystone XL pipeline as a NAFTA legacy claim. For further information or to discuss the contents of this bulletin, please contact Lisa DeMarco at lisa@resilientllp.com.