While the European Commission is currently assessing the different possible forms of the future Carbon Border Adjustment Mechanism (CBAM), MEPs have negotiated compromise amendments detailing their vision of the mechanism in view of the European Parliament's Committee on Environment (ENVI) vote, on Thursday 4 February, on the own-initiative report by Yannick Jadot (Greens/EFA, France) on the CBAM.
Scheduled for June 2021, the Commission's initiative to establish a CBAM aims to reduce the risk of carbon leakage (exacerbated by the EU's rising climate ambitions) by ensuring that the price of EU imports more accurately reflects their carbon content.
While two scenarios still seem to be on the table (see EUROPE 12636/18), the MEPs' compromise amendments mainly address the possibility of a mirror system to the European Union's Emissions Trading Scheme (ETS), considered more likely than the option of a border carbon tax.
However, they do not clearly call on the Commission to move towards this particular scenario.
“Certain groups wish to keep the different options open”, explained one source. The aim of the own-initiative report, in the source’s view, is therefore not to go into the details of the future mechanism, but to set out “the main principles ”, in order, in particular, to ensure the coherence and complementarity of the CBAM with the ETS system.
End of free quotas
To this end, compromise amendment 18 stresses, in particular, that the MACF “ should constitute an alternative to existing measures on carbon leakage” in the sectors covered by the ETS.
And to add: “the implementation of the CBAM should therefore go hand in hand with the parallel, gradual, rapid and eventual complete phase out of those measures” in order to avoid EU installations benefiting from double protection (through existing free emission allowances and the future CBAM).
Regarding the functioning of the mechanism, MEPs believe that importers should buy emission allowances from a pool of allowances separate from the ETS, with the price of carbon corresponding to the day's price in the ETS.
Calculation method
Another issue surrounding the CBAM is how to calculate the greenhouse gas (GHG) emission content of imports, meaning their carbon footprint, so to speak.
According to the MEPs, this emissions content should be accounted for “on the basis of transparent and reliable up-to-date product-specific benchmarks at the level of the installations in third countries”. However, if the importer does not provide data, the overall average GHG emission content of the different products, broken down by different production methods with varying emission intensities, should be used by default.
Furthermore, they consider that carbon pricing of imports should cover both direct and indirect emissions, and therefore also take into account the carbon intensity of the electricity grid in each country or, if data are provided by the importer, the carbon intensity of energy consumption at the installation level. Due to a lack of sufficient support among the political groups, emissions from the transport of imports, on the other hand, are not included in the compromise amendments.
Scope of application
Regarding the scope of the mechanism, the ENVI Committee wants it to cover, by 2023, the electricity sector and energy-intensive industrial sectors such as cement, steel, aluminium, oil refineries, paper, glass, chemicals and fertilisers. As a second step, the scope should be extended to all imports of products and raw materials covered by the ETS, says the draft report.
WTO compliance
Anticipating international criticism and the WTO's warning about the CBAM (see EUROPE 12636/18), MEPs adapt their language in the compromise amendments by repeating that the CBAM should be “exclusively designed to further climate objectives and not be misused as a tool to enhance protectionism, unjustifiable discrimination or restrictions”.
In the same vein, they express reservations about possible export subsidies that could, in their view, lead to unfair competition. According to compromise amendment 21, such subsidies should only be considered if they can prove a positive impact on the environment and are WTO-compatible. This compromise brought together the EPP, Renew Europe, Greens/EFA and S&D groups, despite some doubts on the EPP and Renew Europe sides, according to one source.
MEPs also call on the European Commission to continue working on WTO reform by promoting trade rules in line with the Paris Agreement and International Labour Organisation (ILO) conventions.
Exceptions
Finally, MEPs also call for “special treatment” for Least Developed Countries (LDCs) and Small Island Developing States (SIDS) to take account of the potential negative effects of the mechanism on their development.
According to our information, all compromise amendments are expected to be adopted by the ENVI Committee. However, a doubt remains for amendment 18, related to the link between the CBAM and the ETS, as it is not supported by the EPP group. The majority of its MEPs have reportedly said that the issue of ETS reform should not be addressed in this report (see EUROPE 12591/21).
See the compromise amendments: https://bit.ly/3tq7BdY (Original version in French by Léa Marchal and Damien Genicot)