The European Commission is due to publish its proposal for a Carbon Border Adjustment Mechanism (CBAM) in mid-July. In a working document made available to EUROPE, it details the nature of this new instrument and its scope. This document is subject to change before its official publication.
As expected, and in line with the resolution voted by the European Parliament in March (see EUROPE 12675/8), the carbon adjustment mechanism will be a replica of the Emissions Trading Scheme (ETS) for certain products imported into the EU.
In this way the Commission plans for companies to provide a number of “CBAM certificates” equivalent to the emissions included in the goods they have imported into the EU.
A competent “CBAM authority” will be responsible for overseeing these operations and monitoring the proper implementation of the system.
To do this, it will require all importing companies to submit an application for import authorisation. It will thus have their contact details, details of the goods imported, and will be able to monitor the provision of CBAM certificates, through an annual declaration.
Scope of application.
The sectors covered by the mechanism are cement, electricity, iron, steel, aluminium and fertiliser production. The European Parliament had called for more sectors to be covered, such as oil refineries, paper, glass, and chemicals in the broadest definition.
However, the Commission reserves the option of adopting delegated acts to amend the list of products subject to the CBAM.
The same applies to the list of countries exempted by the mechanism. For the time being, the following countries and territories have a derogation: Iceland, Liechtenstein, Norway, Switzerland, Büsingen, Helgoland, Livigno, Campione d’Italia, Ceuta, and Melilla.
Contrary to what was requested by the European Parliament, no preferential treatment is reserved for the least developed countries, at least for the moment.
On the other hand, measures setting a price for emissions already present in certain third countries will be taken into account. In particular, the Commission is considering sectoral agreements with third countries that have a carbon pricing mechanism. Importers subject to CBAM will also be able to apply for a reduction in the number of CBAM certificates to be provided, in cases where they have already paid the carbon price in the country of origin.
Transition period.
The details of the transitional period and the full entry into force remain to be detailed in the preparatory document, but the path that the European Commission seems to be following is that of a three-year transitional period from 1 January 2023.
At this stage, the Commission is not clarifying the issue of phasing out the free allocation of allowances to companies under the ETS. On the other hand, it indicates that importers of products in the same category as those benefiting from free quotas on the internal market will be able to benefit from reductions in the number of CBAM certificates to be provided.
MEPs had struggled to agree on whether or not to withdraw the free allowances given to companies (see EUROPE 12675/8).
Use of resources
The Commission has decided on the use of revenues related to CBAM certificates. “They shall be assigned to cover the costs of the operation and maintenance of the CBAM Authority. Any revenue remaining after covering these costs shall be assigned to the Union budget”.
See the preparatory document of the proposal: https://bit.ly/3vNQCDp and its annexes: https://bit.ly/3ceQF3w (Original version in French by Léa Marchal and Damien Genicot)