The Czech Presidency of the EU Council reached an agreement with the European Parliament on the Carbon Border Adjustment Mechanism (CBAM) after a long night of negotiations from Monday 12 to Tuesday 13 December. However, it made it clear that this agreement was conditional on the agreement on the revision of the Emissions Trading System (ETS), the last negotiation meeting (‘trilogue’) of which is scheduled to take place on 16 and 17 December.
Several key points of the ETS revision directly concern the CBAM. This is true for the phasing out of free emission allowances, which must go hand in hand with the implementation of the CBAM, but also for a potential solution to support European exporters who will be penalised by the CBAM.
The precise date for the start of the CBAM’s application is therefore pending, but its entry into force has been set for October 2023. This means that by that date, the sectors covered by the CBAM will already have to declare their imports, in accordance with the regulation. They will not yet have to pay for CBAM certificates based on the emissions in their products.
The abolition of free allocations of emission allowances
As a reminder, the European Commission and the EU Council want free allowances to end in 2036, with a 10% reduction per year. The Parliament wants to see free allowances phased out by 2032, at a slow pace until 2030 and then accelerated until 2032. “This gentle implementation, which is then extremely rapid from 2030 onwards, is more appealing, as it gives industry time to adapt”, says Pierre Leturcq, Director of Studies and Development at Europe Jacques Delors and co-author of several reports on the CBAM.
However, the rapporteur on the ETS, Peter Liese, warns against a too rapid withdrawal of free allowances, which could lead to a massive loss of jobs, he says.
The fate of exports
The European Parliament continues to call for preferential treatment for European companies covered by the CBAM, whose products are exported to third countries that do not have a carbon pricing mechanism. They should continue to receive free allowances for some of their exports, the European Parliament said in its report.
“This is all the more necessary in the context of the US Inflation Reduction Act (IRA)”, stressed Pascal Canfin MEP (Renew Europe, French) on 13 December. The IRA offers support to producers of clean technologies, with criteria for domestic production or assembly.
Negotiations with the EU Council on the issue of export subsidies could prove difficult. Mr Canfin, for his part, believes that there is “more and more openness on the part of the European Commission and the Council”.
Extended scope of application
In any case, the 10 hours of negotiation resulted in the approval of the extension of the sectors covered by the CBAM to hydrogen and to indirect emissions, under certain conditions, of the products covered (iron, steel, cement, aluminium, fertilisers, electricity and hydrogen). The CBAM will also apply to certain ‘precursors’, i.e. the components needed for the production of the products mentioned, as well as to some end products containing mostly iron or steel (screws, bolts, etc.) The European Parliament’s rapporteur on the text, Mohammed Chahim (S&D, Dutch), said he was very proud of the extension, which MEPs had requested.
Before the CBAM actually comes into force, there is a revision clause to include other downstream products.
This extension to additional sectors is “unacceptable” for the industry alliance AEGIS, which is concerned about the competitiveness of European companies. (Original version in French by Léa Marchal)