The Commission has presented a package of measures in line with the European Green Agreement, with the aim of reducing greenhouse gas emissions to 55% by 2030 (at the level of the base year 1990). The European Parliament will vote on the Commission’s proposals this semester.
The European Parliament has supported the need to prevent “carbon leakage” by imposing a levy on imports of products from countries with less stringent CO2 emission rules.
by Thanos S. Chonthrogiannis
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The Carbon Contribution, CBAM and the carbon leak
The Carbon Border Adjustment Mechanism (CBAM) of EU will impose coal levies on imports of certain products from non-EU countries (e.g., China). The levies are expected to apply to imports of products from third countries with less stringent carbon emissions rules, ensuring that imported products are not cheaper than their Chinese counterparts.
Given the risk of relocating polluting industries to countries with less stringent greenhouse gas emission restrictions, coal pricing is considered necessary within the EU Emissions Trading Scheme (ETS).
Coal leakage is defined as the shifting and relocation of the production of polluting industries outside the EU to avoid compliance with stricter rules. CBAM solves this carbon leak problem.
The current EU carbon pricing system
Under the EU’s current carbon emissions trading framework, which provides economic incentives to reduce emissions, power plants and industries must issue a license for each ton of carbon dioxide ($ 36 per ton) they produce.
The price of these licenses is adjusted each time by the supply and demand mechanism. Due to the fall in global demand due to the imposition of measures to deal with the Covid-19 pandemic, the demand for these licenses (due to the decline in their production) has decreased as well as their price. This reason keeps companies from investing in RES.
So, the current framework needs reform to solve this problem. CBAM should never be misused as a tool to strengthen protectionism.
In which sectors will be implementing the CBAM?
The new carbon emissions trading framework and the CBAM should therefore be in line with World Trade Organization (WTO) rules and encourage the exemption of industries inside and outside the EU from carbon emissions, while integrating it into its future industrial strategy. EU.
By 2023, the CBAM should apply to the electricity sectors and energy-intensive industries in general (these sectors account for 94% of EU industrial emissions and continue to receive significant free allocations).
The Commission has proposed that the revenue generated by the CBAM be used as new resources for the EU budget, with the main concern being to ensure full transparency in the use of this revenue.
