Saturday

1st Apr 2023

EU carbon border tax to target imports from 2026

  • The EU expects the carbon border tax will bring in nearly €10bn a year (Photo: European Commission)

The European Commission has presented the world's first-ever import levy on certain goods produced in third countries with lower environmental standards - part of the effort to reduce emissions under its massive 'Fit-for-55' package.

The levy - officially known as the Carbon Border Adjustment Mechanism (CBAM) - aims to accelerate global climate action and, at the same time, prevent businesses from transferring production to non-EU countries with less strict climate rules - dubbed 'carbon leakage'.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

It will initially apply to five sectors considered at high-risk of carbon leakage: iron and steel, cement, fertiliser, aluminium, and electricity generation.

But the commission will review the CBAM proposal in 2026 and assess whether to extend it to other sectors.

"By addressing carbon leakage in this way companies elsewhere will be incentivised to green their production processes. But the CBAM will also encourage foreign governments to introduce greener policies for industry," said EU commissioner for the economy, Paolo Gentiloni on Thursday (15 July).

"Ambition and global cooperation should go hand-in-hand," he said, adding that the CBAM will enable such cooperation since it will enter into force gradually.

From 2023 to 2025, importers will only have to report emissions embedded in their goods without paying a financial adjustment - which will then apply from 2026.

This "transitional period" will help businesses adapt to the system and provide certainty, according to Gentiloni.

Brussels expects that CBAM revenues will account for nearly €10bn per year - part of that will contribute to the EU's budget, and the rest will help national governments finance climate policies.

How will it work?

Under the CBAM, importers will buy certificates whose price would correspond to the carbon price they would have paid, if the goods had been produced in the EU.

The EU's carbon pricing rules are governed by the bloc's Emission Trading System (ETS). Under this cap-and-trade scheme, a price is put on carbon emissions, and emission allowances are then auctioned.

Earlier this year, carbon prices in the EU hit a record high of above €50-per-tonne.

When non-EU producers can prove that they have already paid for the emissions related to the production of imported goods in a third country, that amount would be deducted from their bill.

The CBAM would only apply to direct emissions emitted during the production process, but not to the so-called indirect emissions, such as those from the electricity used in manufacturing.

Iceland, Liechtenstein, Norway and Switzerland will be excluded from the mechanism since their emission trading system is linked to the EU's carbon market.

Replacing free allowances - eventually

"The CBAM has been designed to mirror the already exiting ETS system to ensure a fair and equal treatment from products made in the EU and imports for elsewhere," said Gentiloni.

The ETS is one of the main mechanisms of the bloc's climate policy to reduce greenhouse gas emissions. Polluters pay to offset the harm done, thereby establishing economic incentives to reduce emissions.

However, given that carbon costs can vary significantly between countries and the risk of carbon leakage already exists, heavy industries receive free allowances to remain competitive.

The CBAM aims to become an alternative to the free allowances system over time.

Under the commission proposal, free allowances for sectors covered by the CBAM would be phased out from 2026 until 2035.

To avoid being incompatible with rules of the World Trade Organization, the CBAM will apply only to the proportion of emissions that does not benefit from free allowances under the ETS.

Environmental and consumer groups have repeatedly pointed out that any subsidies to fossil-fuel intensive industries under the ETS must be phased out as they could easily undermine public support for climate policies.

However, according to Eline Blot, a trade analyst at the think tank Institute for European Environmental Policy, the commission proposal "seems to stretch out, rather than accelerate, the phase-out of free allowances to EU industry".

MEPs agree carbon border tax - heavy industries protected

Green groups warned that if heavy industry continues to receive free allowances even after a carbon border levy is in place, this would essentially be a double subsidy for those sectors. "The European Commission must correct this," the WWF warned.

Investigation

Macron's carbon border tax - why hasn't he done anything?

The French president has repeatedly said an EU border tax on carbon emissions is 'crucial'. However, his civil servants have yet to send Brussels a single proposal on how such a levy would work.

Timmermans urges EU governments to tax carbon

The EU commissioner for the Green Deal, Frans Timmermans, said on Thursday that member states have a responsibility to implement taxes on carbon to show that emissions have a cost.

ETS expansion to homes and cars raises bills fears

The EU wants to become the first continent to reach net-zero. But revenues from the Social Climate Fund will be low, and not commensurate with the task of renovating 35 million homes or getting millions of cars off the road.

Agenda

Rule of law and Czech presidency priorities This WEEK

The European Commission will unveil its rule-of-law audit of all EU member states this week. Meanwhile, several ministers from the Czech Republic will present to EU lawmakers the priorities of the rotating EU Council presidency for the next six months.

Opinion

Dear EU, the science is clear: burning wood for energy is bad

The EU and the bioenergy industry claim trees cut for energy will regrow, eventually removing extra CO2 from the atmosphere. But regrowth is not certain, and takes time, decades or longer. In the meantime, burning wood makes climate change worse.

Opinion

EU's new critical raw materials act could be a recipe for conflict

Solar panels, wind-turbines, electric vehicle batteries and other green technologies require minerals including aluminium, cobalt and lithium — which are mined in some of the most conflict-riven nations on earth, such as the Democratic Republic of Congo, Guinea, and Kazakhstan.

Latest News

  1. EU to press South Korea on arming Ukraine
  2. Aid agencies clam up in Congo sex-for-work scandal
  3. Ukraine — what's been destroyed so far, and who pays?
  4. EU sending anti-coup mission to Moldova in May
  5. Firms will have to reveal and close gender pay-gap
  6. Why do 83% of Albanians want to leave Albania?
  7. Police violence in rural French water demos sparks protests
  8. Work insecurity: the high cost of ultra-fast grocery deliveries

Stakeholders' Highlights

  1. EFBWWEFBWW calls for the EC to stop exploitation in subcontracting chains
  2. InformaConnecting Expert Industry-Leaders, Top Suppliers, and Inquiring Buyers all in one space - visit Battery Show Europe.
  3. EFBWWEFBWW and FIEC do not agree to any exemptions to mandatory prior notifications in construction
  4. Nordic Council of MinistersNordic and Baltic ways to prevent gender-based violence
  5. Nordic Council of MinistersCSW67: Economic gender equality now! Nordic ways to close the pension gap
  6. Nordic Council of MinistersCSW67: Pushing back the push-back - Nordic solutions to online gender-based violence

Join EUobserver

Support quality EU news

Join us