In June 2020, the Europe Jacques Delors Institute published its policy paper for a Carbon Border Adjustment Mechanism (CBAM) that mirrors the European Emissions Trading Scheme (ETS). Following the European Commission’s presentation of its draft CBAM (see EUROPE 12762/5) on Wednesday 14 July, Geneviève Pons, Director of the Europe Jacques Delors Institute, talks to EUROPE about the details of this proposal.
Responsible for environmental and climate issues in Jacques Delors’ cabinet during his last two mandates as President of the European Commission, and co-author, with Pascal Lamy, of a series on the greening of international trade, Ms Pons has an in-depth knowledge of trade and environmental issues.
The Commission intends to introduce a Carbon Border Adjustment Mechanism gradually, from 2023 to 2026. Surrender emission allowances obligations will only enter into force in 2026, according to the proposal. In your 2020 document, you proposed a different approach. What do you think of this calendar?
I think that we need a pilot phase, because it is very difficult to implement. What is envisaged by the Commission seems reasonable to me. Things will fall into place technically. Importers will have to make their declarations, it will not be paid for immediately. That’s one way to do it. Of course, we would prefer it to go faster.
The Commission plans to apply the mechanism to five sectors from 2026. You proposed to start with only two of them: electricity and cement. Do you see a risk in starting with these different sectors?
No, I don’t see any major risks, because we were proposing a two-year pilot phase, and then an application to other carbon-intensive sectors. Here, the most carbon-intensive sectors are taken from the start, but there is a pilot phase in which the applicability of the measure is tested.
The Commission plans a 10-year phase-out of free allocations in the ETS from 2026. In your report, you recommended a gradual but rapid end. How do you interpret the Commission’s choice at this stage?
Maintaining free quotas continues to provide no incentive for the sectors that benefit from them to decarbonise. There is a near-stagnation of emissions for companies that continue to receive free allocations. For the electricity sector, which does not receive any, there is indeed a decrease in emissions. So I would have preferred the release to have happened earlier. In the pilot sectors, this was proposed for 2022 or 2023. Now we are losing two or three years.
Nevertheless, I would not like to suggest that the Commission’s draft is bad. The proposal contains many of the elements that we put forward in our document: the fact that it is not a tax, but a mirror of the ETS, for example; the simultaneous disappearance of free allowances, which is a necessity if we want to respect WTO rules.
The Commission plans to feed the general EU budget with CBAM resources and the European Parliament seems to agree with this. Do you think they can keep this line in front of foreign partners?
When you introduce a CBAM, you don’t do it to make money. You put it to discourage emissions. A mechanism that works well is a mechanism that pays little and must pay less and less over time.
So we have this first problem of logic. And we have a second one, which is consistency with WTO rules. Because it must be possible to prove from A to Z that the logic is environmental and not budgetary. The use of revenues must therefore also be environmental. By making it an own resource, we are obliged to pay it into the general budget and there is a rule of non-allocation in the general budget which means that it cannot be used for the environment or for a particular item. So, we are putting ourselves in an awkward and delicate situation.
The Parliament is on the same page, indeed. We interacted with Pascal Canfin recently (Chair of the European Parliament Committee on Environment, Renew Europe, France), who remains on this page even though it is not in line with the logic of the measure. But it is quite possible that his position reflects the position of France, which will take over the EU Council Presidency in January 2022. I think this is a French analysis. But it weakens the logic and strength of the adjustment mechanism.
However, I hope that this weakness can be corrected. If it cannot, other means would have to be found to correct this perception of the least developed countries and to find other ways to help them in their transition.
As regards the so-called vulnerable countries, the Commission does not provide for an exemption for them in the CBAM. It only envisages a reduction in the number of emission allowances when a carbon price has already been paid in the country of origin You argued for preferential treatment for the least developed countries. Do you understand the Commission’s position?
This is a very legal position taken at this stage. It falls under Article 3, paragraph 4 of the WTO’s General Agreement on Tariffs and Trade (GATT). It must be shown that everyone is treated equally, they do not fall under the exceptions of Article 20, which allows for exemptions. They have sought an easier legal basis, but other ways will have to be found to take account of other existing carbon pricing schemes and the weaknesses and needs of the poorest countries.