On Wednesday 22 June the European Parliament adopted by a large majority (450 votes in favour, 115 against and 55 abstentions) the draft report by Mohammed Chahim (S&D, Netherlands) on the introduction of a ‘Carbon Border Adjustment Mechanism’ (CBAM) in the European Union.
“Thanks to the CBAM, the EU will finally have a tool to incentivise our global trading partners to decarbonise their manufacturing industries, as no matter where you pollute, you will now have to pay for it, if you want to export to the European market”, Mr Chahim said after the vote.
Entry into force
MEPs want the CBAM to be operational from 1 January 2027, after a transition period from 1 January 2023 to 31 December 2026.
During this period, the sectors covered by this mechanism would continue to benefit from free emission allowances. In parallel with the implementation of the mechanism, these quotas would then be progressively reduced: to 93% in 2027, 84% in 2028, 69% in 2029, 50% in 2030, 25% in 2031, reaching 0% in 2032.
This pace of phasing out free allowances for the sectors covered by the CBAM is the result of a compromise reached between the EPP, S&D and Renew Europe groups over the last 2 weeks (see EUROPE 12972/11). On Wednesday 8 June, this issue divided the Parliament, causing the postponement of the initial voting session on the CBAM (see EUROPE 12967/1).
The European Commission, on the other hand, proposed the introduction of CBAM one year earlier, in 2026, but with a slower pace of removal of free allowances, i.e. a 10% reduction each year between 2026 and 2036 (see EUROPE 12762/5).
Scope
MEPs also voted in favour of extending the sectors covered by the CBAM to hydrogen, polymers (a class of materials made up of macromolecules) and organic compounds.
As provided for in the compromise between the three groups mentioned above, this extension is nevertheless conditional on the completion of a report by the European Commission before the end of the CBAM transition period. The institution will thus have to assess “the technical specifics of calculating embodied emissions for organic chemicals and polymers, their value chains and the ability of the mechanism to adequately address the risk of carbon leakage for these sectors”.
In its proposal presented in July 2021, the Commission had indicated that organic compounds were not included in the scope of CBAM due to technical limitations “not allowing for the definition of integrated emissions from imported products”.
Export rebates
The European Parliament also adopted the compromise of the EPP, S&D and Renew Europe groups to grant free allowances to companies covered by CBAM whose products are exported to third countries that do not have a carbon pricing mechanism equivalent to the EU carbon market (‘emissions trading system’ or ETS).
However, the Commission will have to provide a report by 2026 on the compatibility of such a measure with World Trade Organization (WTO) rules and on the effects of CBAM and the ETS on European production of these products and on the development of global emissions.
Support for the least developed countries
Regarding the revenue generated by CBAM, the Parliament wants it to go to the EU budget as general revenue.
The EU would also be required to provide financial support of at least the same amount as the revenues generated by CBAM to support the efforts of Least Developed Countries (LDCs) to decarbonise their manufacturing industries.
Creation of a centralised authority
Rather than having 27 competent authorities, the Parliament believes that there should be a centralised European CBAM authority responsible for implementing and monitoring compliance with the regulation establishing the mechanism. (Original version in French by Damien Genicot with Léa Marchal)