A Further Step to Carbon Tariff — ENVI Voted to Approve CBAM

On February 9, the Environment, Public Health and Food Safety (ENVI) Committee tweeted that it has endorsed the Carbon Border Adjustment Mechanism (CBAM), a measure aimed at responding to climate change and preventing carbon leakage, with 63 votes in favor, 7 votes against and 7 votes in abstention.

Meanwhile, another tweet from ENVI Committee confirmed that the revision to the European Union Emissions Trading System (EU-ETS) was also endorsed, with 57 votes in favor, 13 votes against, and 6 votes in abstention.

However, there is still a long way to go before CBAM is adopted. According to the EU legislative procedure, the documents shall undergo a ballot by the European Parliament and the Council before it is formally adopted.

Since the CBAM draft has been jointly discussed and amended by the European Council and the Commission in the previous year, it is expected that the draft might not be much revised in the next two rounds of voting but details are still to be improved.

The main task of CBAM is to resolve the so-called carbon leakage – companies based in the EU could move carbon-intensive production abroad to take advantage of lax standards. CBAM is seen as a supplement to the current EU-ETs, while ensuring WTO compatibility, so it is unlikely to involve the products life cycle emission.

But the two have differences as well. EU-ETS focuses on carbon activities and relevant entities and corporate Greenhouse Gas (GHG) emissions while CBAM targets imposing tax on imported products, just like tariffs. Therefore, CBAM is also known as a “carbon tariff”.

Currently, the proposed scope of CBAM covers electricity, iron and steel, cement, aluminum, fertilizers, hydrogen, indirect emissions under specific circumstances, specific precursors, and downstream products including screws, bolts, and similar steel products

It is estimated that CBAM will enter into force on October 1, 2023, with a transitional period. In 2026, CBAM shall be fully implemented by gradually eliminating the free allowances of EU enterprises in EU-ETS. By 2034, free allowances shall be fully phased out.

In terms of organic chemicals, including polymers, they can only be covered after the assessment by the European Commission. All products in EU-ETS are expected to be fully covered by 2030. The Commission will also assess the indirect emission calculation and the feasibility of covering additional downstream products.

At present, it is urgent for enterprises whose products have been included in CBAM to calculate carbon emissions in different phases. On this basis, enterprises can set a scientific carbon emission target to reduce carbon tariffs. Other relevant industries such as the chemical industry may earn sufficient time to calculate the carbon emissions of their factories and products. It is recommended that enterprises should select products exported to the EU market and calculate the carbon emissions of products in CBAM. By doing so, enterprises can understand trade costs and formulate carbon emission targets and take action in a scientific way.

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Further Information

A Further Step to Carbon Tariff