In an analysis published on Tuesday 26 November, think-tank Bruegel examines the remaining shortcomings in the pricing of emissions from the EU’s energy-intensive industries.
To protect them from foreign competition, which is not subject to carbon pricing, these industries have benefited from free allowances under the EU Emissions Trading System (ETS). The analysis points out that this situation is “distorting the single market” and “nullifying the potential benefits of industrial reallocation”.
However, this major loophole for these industries will soon come to an end as the 2023 ETS reform ends free carbon allowances for certain products for energy-intensive industries, exposing them to full carbon pricing by 2034.
But challenges remain. As a result, EU exporters face global competition without equivalent carbon pricing.
In addition, the limited coverage of products under the Carbon Border Adjustment Mechanism (CBAM) may encourage producers to relocate outside the EU and export to the EU products further down the value chain that are not subject to CBAM.
Unequal subsidies between regions can also distort the EU’s single market.
The policy solutions, according to Bruegel, are to prioritise export subsidies, advance carbon pricing at global level, harmonise state aid and pool subsidies at EU level.
Link to the analysis https://aeur.eu/f/ek2 (Original version in French by Pauline Denys)