The Carbon Border Adjustment Mechanism: a half-baked proposal

With the Fit for 55 package, the European Commission proposed  a set of policy measures to achieve the ambitious EU greenhouse gas emissions (GHG) reduction target of 55% by 2030. Among these is the highly touted and internationally controversial Carbon Border Adjustment Mechanism (CBAM).

With the Fit for 55 package, the European Commission proposed a set of policy measures to achieve the ambitious EU greenhouse gas emissions (GHG) reduction target of 55% by 2030. Among these is the highly touted and internationally controversial Carbon Border Adjustment Mechanism (CBAM), a proposal to impose an import fee on some carbon intensive raw materials coming into the EU. The primary aim of CBAM is to prevent carbon leakage* and to also provide companies outside the EU with an incentive to reduce CO2 emissions from their production processes. The proposed CBAM also aims to establish a level playing field for EU raw material producers versus producers based outside of the EU.

Watch APPLiA’s short explanatory video, here.

The Mechanism entered the scene in the context of the proposed removal of ETS free allowances, also part of the Fit for 55, which will make manufacturing of steel, aluminum, cement and electricity in Europe more expensive, in an effort to tackle climate change by putting a price on CO2 emissions. The cost increase will affect all manufacturing companies that use such materials, including the household appliance industry, with worrying consequences for manufacturing in Europe” commented Paolo Falcioni, APPLiA Director General, shedding light on the negative impact the Mechanism would have on the competitiveness of the EU manufacturing industry. Indeed, “the Commission’s proposal for ETS and CBAM would inevitably translate into a competitive disadvantage for manufacturing in Europe,'' he continued, as it would make products that are manufactured abroad and imported into the EU more competitive than EU-made ones, on the home market of many European companies. This would not only undermine the very objective of the Policy, but also generate significant environmental impacts outside the EU. CO2 emissions occurring beyond European borders cannot be monitored nor regulated under EU legislation.

As it currently stands, the introduction of CBAM will create an incentive for manufacturing outside of Europe and importing products to the EU. “This would generate a significant loss of European jobs,” stressed Mr Falcioni, highlighting how the joint combination of the planned ETS revisions and the current CBAM proposal would risk jeopardising the European economy. Originally thought to address the risk of carbon leakage in the raw materials industry, “CBAM as proposed by the EU Commission would simply move the carbon leakage from the raw materials industry to other downstream industrial sectors,” he detailed. The EU home appliance industry is a highly competitive sector at the global level, with low margins. For this reason, it is very sensitive to changes in its cost basis.

Squaring the circle of climate targets entails “a Mechanism that works as a safeguard to all European industries and prevents carbon leakage of all sectors,” preserving the competitiveness of all EU companies. To ensure this, “a legislative proposal addressing these issues needs to be presented by the European Commission two years ahead of the removal of free allowances in ETS, foreseen as from 2026,” explained Mr Falcioni. This would allow securing well-consolidated pillars of the EU such as the competitiveness of all European industries, EU jobs, global sustainability leadership and resilience among others, while also satisfying WTO trade requirements.

Watch APPLiA’s short explanatory video, here.

 

*/The term ”carbon leakage” is used to describe a situation whereby it becomes more interesting to produce products outside the EU, and import products to the EU, meaning the CO2 emissions from the production will occur outside the EU.