European CBAM - Implications for global refining

The EU reached a provisional agreement on a first-of-its-kind Carbon Border Adjustment Mechanism (CBAM) in December 2022. The CBAM is part of the ‘Fit for 55’ climate package, the EU’s policy commitment to reduce emissions to at least 55% from 1990 levels by 2030. A carbon border tax is an import duty based on a commodity’s embedded carbon emissions. CBAM aims to avoid carbon leakage by equalising the carbon costs of production for EU and non-EU products, and phases in as the carbon ETS free allowances phase out. For the refining sector, Wood Mackenzie’s long-term refined products outlook already includes the impact of the EU CBAM - our base case assumes CBAM will phase in for European refining between 2028 and 2035. This insight utilises Wood Mackenzie's Refinery Supply Model (RSM) to explore how the CBAM impacts both EU and non-EU refiners, and how the levy readjusts global trade flows.