European lawmakers reached a political agreement at dawn on Tuesday on the introduction of a carbon border tax, one of the key tools in the EU’s fight against global warming. From now on, with this tax, manufacturers who want to bring foreign products to European soil will have to pay for the carbon emitted during their production. This system will come into full effect in 2026 or 2027.
The carbon tax will be officially called the Carbon Border Adjustment Mechanism (CBAM). It was presented by the European Commission in July 2021, with the aim of taxing CO2 emissions linked to imports of steel, cement, fertilizers, aluminum and electricity.
CBAM will put European industries on an equal footing with their foreign competitors.
Concretely, importers will have to buy emission certificates based on the carbon price they would have had to pay if the goods had been produced in the EU. Because European companies must buy CO2 quotas on the European carbon market when they pollute.
The system currently concerns a limited number of sectors, which are also very polluting: iron and steel, cement, fertilizers, aluminium, electricity and hydrogen, as well as finished products such as fasteners. A list of products destined to expand. European manufacturers will no longer be tempted to relocate, since the carbon tax will put all products at the European price level.
For example, for steel produced in China, Beijing will have to pay for the pollution emitted during the mining extraction, then by the factory and by the electric factory which supplies the factory. This “carbon cost” will be imposed on imports into the EU deemed to be the most polluting.
The new carbon border adjustment mechanism is to apply from October 2023. Initially, until 2026, importers will only have to declare the carbon emissions of imported products.
The other hard point of the negotiation concerns exports. Parliament wants companies that have invested in “green” to continue to receive free allowances for their production exported to non-EU countries that do not have comparable carbon pricing. Otherwise, they would lose competitiveness. However, the Commission considers this to be contrary to WTO rules.
The agreement reached between the Commission, the Member States and Parliament, meeting in trilogue, after long nocturnal discussions, does not resolve all the thorny issues. The main outstanding points, which depend on an agreement on the reform of the carbon market, are discussed in another trialogue this weekend. All of these measures are part of the vast legislative arsenal (called “Fit for 55”) currently being negotiated to enable the EU to meet its climate objectives: to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 in order to achieve carbon neutrality by 2050.