Carbon Border Adjustment Mechanism
As a key part of the “Fit for 55” package to meet European Green Deal objectives, the European Commission has published its proposal for a Carbon Border Adjustment Mechanism (CBAM). The basic principle of the CBAM design is foreseen as an obligation on the importer to buy CBAM certificates, based on the carbon emissions embedded in the imported products. The regulation is initially to be applied to sectors considered at high risk of carbon leakage: iron and steel, cement, fertilisers, aluminium and electricity.
The price of the certificates corresponds to the price of allowances imposed on EU domestic industry under the EU ETS. The proposal of the CBAM measure intends to address the risk of carbon leakage – avoiding businesses transferring production to non-EU countries with less stringent climate rules. It is also meant to encourage producers in non-EU countries to embrace climate actions.
The main elements of the Commission’s CBAM proposal are based on the initial scope of sectors, focusing on only direct emissions, application of the CBAM to imports from all non-EU countries and WTO compatibility. Finally, the CBAM is expected to enter into force in 2023 with a three-year transition period.
FuelsEurope welcomes the Commission initiative to reduce the risk of carbon and investment leakage as the EU increases its climate ambition. However, any proposed mechanism should be designed such that it:
- Improves the effectiveness of policies aimed at addressing climate change in the EU and globally.
- Does not deteriorate the competitiveness of the EU industrial sectors, both in the domestic EU market and globally.
- Is compatible with relevant international trade agreements.
Furthermore, as the refining sector is foreseen to be included in the CBAM scope extension, FuelsEurope emphasises the need for a methodology that calculates the carbon content of imported products and requires information from all importers consistent with the data used to calculate the carbon intensity of products made in the EU only. By applying the same methodology to calculate the CO2 intensity of any EU produced or imported product, a level playing field can effectively be ensured, recognising the increased administrative burden and challenges of verification and accreditation this may cause.
Read our position paper on CBAM here.
Read our Fit for 55 recommendations here.