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17th May 2022

Lead MEP says carbon border tax money must help poor nations

  • Under EU Commission plan, the carbon border tax, due to enter into force in 2026, will target certain goods produced in third countries with lower environmental standards (Photo: European Commission)
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The revenues from the EU's proposed carbon border tax should be used to support the decarbonisation of least-developed countries, a leading MEP has proposed in a draft report leaked to the press on Wednesday (5 January).

The so-called carbon border adjustment mechanism (CBAM), which will set a new levy on imports of iron, steel, cement, fertiliser, aluminium, and electricity, is expected to provide €1bn per year once it is fully implemented.

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In a draft report from the European Parliament environment committee, Dutch centre-left MEP Mohammed Chahim has called for the mobilisation of these resources to help support poorer nations' climate efforts.

The text excludes the granting of any exemptions and, instead, it states that "financial support shall be provided to support least-developed countries' efforts towards the decarbonisation of their manufacturing industries".

"We need to avoid CBAM affecting LDC's [least-developed countries] disproportionally. Direct exemptions would however be the wrong signal," Chahim tweeted on Wednesday, arguing that this mechanism should foster cooperation rather than confrontation.

He added that only trade partners with "explicit" carbon pricing policies in place would benefit from certain exemptions under the CBAM.

The report, which is a response to the European Commission proposal presented last July, is seen as a complete overhaul of the initial text.

Under the EU executive's plan, the carbon border tax, due to enter into force in 2026, will target certain goods produced in third countries with lower environmental standards.

But Chahim's report calls for an earlier implementation and a wider scope of imports, with basic chemicals, polymers, and hydrogen added to the list of products covered by the new levy.

Additionally, a transitional period designed to help businesses adapt to the system has been shortened from two to one year and the deadline to phase out free allowances has been set to the end of 2028 — eight years earlier than in the commission proposal.

Under the cap-and-trade Emission Trading System, free permits help industry, aviation and, in some countries, the electricity sector, remain competitive against rivals based in third countries.

But the commission's plan to phase out free allowances between 2026 and 2035 has been criticised by green groups, which accused the EU executive of protecting carbon-intensive industries from the 'polluters pay' principle.

Accelerating the phase-out of free allowances by end of 2028 instead of 2035 has been welcomed by NGOs, such as German Watch, which sees it as "[a] clear improvement and important step for industry transformation".

Another significant change made in the report is the creation of a European CBAM Authority, which would be responsible for verified declarations of emissions and certificates for importers.

According to Pierre Leturcq, policy analyst of the Institute for European Environmental Policy, this proposal answers "the risk of circumvention" arising from a decentralised system of national authorities.

This would prevent foreign companies from introducing their products into the EU market through those member states whose administrations have the lowest capacity to control emission declarations, he said.

Besides accelerating global climate action, the CBAM aims to prevent businesses from transferring production to third countries with less strict climate rules - dubbed 'carbon leakage'.

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