The recent report adopted by the European Parliament supporting the introduction of a Carbon Border Adjustment Mechanism is a breakthrough step in EU Climate policy. For the first time in the history of the European Union, we have an agreement within a wide majority of the Parliament plenary for the introduction of a robust, coherent, WTO compatible and most importantly, correct, carbon pricing mechanism to ensure that imports into the European Union are priced for the carbon content, the same way goods produced in the EU are.
As an own initiative report, this sets the strategic direction of travel for the discussion in the future and several of the elements which this report consolidated and received a plenary approval for good building blocks for the upcoming European Commission’s proposal on the topic. The discussion has moved from the if we should have, to a concrete vision and proposal of how it should look like and what the role of this policy in the wider policy mix will be.
Here are top 10 ‘good for the climate’ elements of the report:
- The Adopted CBAM report recommends that the Commission develops methodologies to incorporate a product’s full carbon and environmental footprint through a full life cycle analysis (from extraction to use of materials) and stresses the need for correct accounting for embedded emissions to be reflected as granularly and accurate as possibly, including in the area of international transport;
- It recommends the CBAM is introduced as soon as possible (2023) – this is in line with the timeline of the EU Green Deal and with the urgency of the climate crisis we are in;
- The INI Report suggests CBAMs should be applied to the whole range of sectors that the EU ETS applies to (electricity, steel, cement, paper, glass, oil refineries, fertilizers, chemicals) – this is a much wider coverage than initially foreseen in the discussions and in that sense, guarantees a fairer level playing field between EU industries and the rest of the world;
- The report establishes the core principle of a WTO compatible CBAM and suggests several avenues for this;
- A key aspect of the implementation discussion on a CBAM is that the newly adopted EP report proposes the introduction of an independent body to monitor the implementation of the CBAM;
- A progressive element is that the European Parliament recommends the introduction of a CBAM that goes beyond covering just commodities, to also cover carbon embedded in intermediate and final products (this would apply to parts made from steel as well as steel itself);
- The adopted report specifically calls for the removal of all environmentally harmful subsidies at national level (free allocation, covering co2 emissions from heavy industry would fall in this category, since it is also administered and allocated at the national level);
- The report proposes the new CBAM to be explored alongside the revision of the EU ETS so as to ensure they are complementary and consistent, and to avoid overlapping that would lead to double protection of EU industries (in other words, emissions covered by a CBAM won’t be covered by free allocation at the same time and also applies this principle for the importers, specifically mentioning the need to avoid taxing them twice as well for the same carbon);
- Proposes special treatment to be given to LDC and SIDS to minimise the negative impact of CBAM on their development. This allows for the possibility of support for clean development, although there are risks that badly implemented this provision could allow high carbon development pathways to be adopted in such states; however, if the revenues from the CBAM were wired back to support innovation and clean development back there, this provision on special treatment could be particularly helpful in promoting a just approach to global climate mitigation efforts;
- Reiterates that the introduction of a CBAM is a critical part of a wider policy package needed to ensure the swift reduction of GHG emissions deriving from the EU – this is indeed necessary for the decarbonisation of heavy industry and the same report specifically mentions the complementary role that binding norms and product standards for product entering the EU could play.
All in the Parliament has come in support of the introduction of WTO compatible CBAM, defined what that means and gave, for the very first time, a clear vision and a specific way forward. This includes specific mentions to the preference for creating a separate pool of allowances and incorporate an extremely thorough accounting for emissions, which we will most certainly need in the run up to 2050.
The closing line for this blog is only the starting point for a bigger process to be taken up by the European Commission, text directly taken from the European Parliament’s INI report on the introduction of a WTO Compatible CBAM:
“The European Parliament supports the introduction of a CBAM, provided that it is compatible with WTO rules and EU free trade agreements (FTAs) by not being discriminatory or constituting a disguised restriction on international trade; considers that as such, a CBAM would create an incentive for European industries and EU trade partners to decarbonise their industries and therefore support both EU and global climate policies towards GHG neutrality in line with the Paris Agreement objectives; states unequivocally that a CBAM should be exclusively designed to advance climate objectives and not be misused as a tool to enhance protectionism, unjustifiable discrimination or restrictions; stresses that this mechanism should support the EU’s green objectives, in particular to better address GHG emissions embedded in EU industry and in international trade, while being non-discriminatory and striving for a global level playing field” (art. 7)
Read more on Bellona’s position on Carbon Border Adjustment Mechanism (CBAM) in our consultation response.