European Union policy makers reached a landmark deal Tuesday to impose an emissions price on some imports from third countries in an attempt to ensure a level playing field for the bloc’s industries during an unprecedented green overhaul.
(Bloomberg) — European Union policy makers reached a landmark deal Tuesday to impose an emissions price on some imports from third countries in an attempt to ensure a level playing field for the bloc’s industries during an unprecedented green overhaul.
After hours of late-night negotiations, EU governments and the European Parliament thrashed out key details of the Carbon Border Adjustment Mechanism, whose phase-in will start with reporting obligations in October 2023. It will cover carbon-intensive sectors such as cement, steel, aluminum fertilizers and electricity production and hydrogen.
The plans of the EU, which aims to be at the forefront of the global fight against climate change, have already caused diplomatic unease in nations such as China and India, and there’s concern that Russia may not comply with it. The mechanism also comes amid growing tensions over a major US $369 billion climate law that provides subsidies only to American manufacturers to develop some clean technologies.
“Of course CBAM will have impact on our trade partners, because it’s designed to,” Pascal Canfin, chair of the EU Parliament’s environment committee, told reporters at a briefing on Tuesday in Strasbourg, where the talks took place on the sidelines of the assembly’s plenary sitting. “It’s important that the EU leads on the connection between climate and trade policies.”
The idea of putting a price on emissions at the border has been floated in the region over the past two decades but it wasn’t until in 2021 that the European Commission put forward a draft regulation. Part of a package to cut greenhouse gases by at least 55% by the end of the decade, the measure envisaged that the importer would be entitled to account for the pollutions costs paid in the country of origin if it has carbon pricing.
“It’s a very strong message to the rest of the world and I can’t imagine that other regions will not follow with a similar mechanism,” said Mohammed Chahim, lead negotiator for the parliament on the measure. “At the end of the day, if we become climate neutral and other regions don’t follow us in this pledge by the middle of the century, the Paris Agreement is further and further away from feasible.”
Under the agreement, CBAM will also include indirect emissions under certain conditions, Chahim added. The commission will assess the methodology for such pollution before the end of the transition period.
The preliminary agreement among negotiators will need the endorsement of ministers from national governments and the full parliament to enter into force. But first policymakers need to iron out a deal on another draft law — a deep reform of the EU carbon market. Talks on that issue are due to take place Friday and Saturday.
The Emissions Trading System overhaul is closely linked to CBAM because it will spell out how and when to phase out emissions allowances that sectors covered by the emissions levy currently get for free to avoid relocation to countries with laxer climate policies. It will also decide how to treat exporters covered by the ETS, whose competitiveness may be at risk when they send goods to countries without carbon pricing.
“We have need to have a mechanism, even more in the context of IRA,” Canfin said, referring to the controversial US law by its title, the Inflation Reduction Act.
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