CBAM: How to make the Mechanism fit for purpose?

As it stands, CBAM lacks the necessary provisions to effectively prevent carbon leakage in downstream products. Paolo Falcioni, APPLiA Director-General discussed the implications of CBAM, as currently proposed, as part of a roundtable discussion on CBAM at Politico Live’s Competitive Europe Summit. 

As it stands, CBAM lacks the necessary provisions to effectively prevent carbon leakage in downstream products. Paolo Falcioni, APPLiA Director-General discussed the implications of CBAM, as currently proposed, as part of a roundtable discussion on CBAM at Politico Live’s Competitive Europe Summit. 

As it stands, CBAM lacks the necessary provisions to effectively prevent carbon leakage in downstream products, repercussions of this include the likelihood of stimulating a transfer of carbon emissions, production, and investments outside of the EU bringing to industrial delocalisation. Essentially, the Mechanism aims to replicate the European carbon price on imported goods, so European raw material producers and international competitors pay the same price on carbon, wherever the location of production. A key consequence of this can be exemplified by the case of a washing machine that is manufactured in Europe. In this instance, the cost of carbon emissions would apply to the aluminium, iron, and steel used in the production process, whether or not they have been supplied in the EU (subject to the EU-ETS) or imported from elsewhere (subject to CBAM). On the other hand, the same washing machine manufactured outside of Europe would not be subjected to either the EU-ETS, or to CBAM. “This imbalance does not aid the Europe Commission’s objectives set by the European Green Deal. It does not reduce CO2 emissions outside of the EU whilst also hampering European competition, eventually leading to the incentivisation of industrial delocalisation and the regression of EU exports,” stated Falcioni. 

To make CBAM fit for purpose, a complementary legislative proposal should be introduced towards properly addressing downstream products, and ultimately preserving the competitiveness of the EU manufacturing industry across global markets. By their nature, downstream products are more complex than raw materials and therefore require a more robust methodology. In response, the European Parliament’s ENVI Committee proposed extending the scope of CBAM to downstream products, through delegated acts. “This is an incomplete answer to a multi-faceted issue, that would merely risk sweeping the dust under the rug,” explained Falcioni. Here, a simple extension of the scope to include downstream products does not cover the wide-ranging, complex intricacies of the industry. “What is needed instead, is for these to be clearly defined and subjected to a tailor-made methodology,” Falcioni concluded.