EU countries agree world’s first carbon tariff, but leave out controversial issues

The agreement between EU countries on a carbon border levy is “a victory for European climate policy”, according to French ecnomy minister Bruno Le Maire [European Union]

The EU’s 27 economy ministers reached an agreement on Tuesday (15 March) to introduce a carbon levy on imports of highly-polluting goods like steel, cement and fertilisers, but kicked the can down the road on controversial aspects like the use of revenues coming from the scheme.

The carbon border adjustment mechanism (CBAM) was proposed by the European Commission last year as a way to protect EU industry from imports of products coming from countries where it is cheaper to pollute.

Making headway on the idea is a priority for France which currently holds the rotating presidency of the EU. According to French economy minister Bruno Le Maire, who chaired yesterday’s meeting, the agreement between EU countries on CBAM is “a victory for European climate policy”.

“It will give us a tool to speed up the decarbonisation of our industry, while protecting it from companies from countries with less ambitious climate goals,” he said.

“It will also incentivise other countries to become more sustainable and emit less. Finally, this mechanism responds to our European ambitious strategy that is to accelerate Europe’s energy independence,” he added.

EU countries want the levy to cover cement, aluminium, fertilisers, electric energy production, iron and steel.

The ministers agreed with a sizeable majority on their stance, which envisages greater centralisation of the scheme, including the creation of a new registry for importers at the EU level.

The lead lawmaker in the European Parliament has gone even further than this, calling for a CBAM authority at the EU level to prevent importers from shopping around for the best country to import into.

According to EU ministers, there should also be a minimum threshold for eligibility so consignments under the value of €150 would be exempt in order to reduce administrative complexity. This would cover around one-third of the consignments to the EU.

EU ministers also supported Germany’s idea of a so-called “climate club” where developed countries would align their carbon pricing policies as a way of reducing emissions and escaping the EU tax.

“CBAM has to be part and parcel of an open climate club. We want to encourage other countries to make similar and appropriate efforts, and we have to react to these efforts,” German finance minister Christian Lindner said at the meeting.

EU in balancing act over carbon border levy, industry concerns

The European Commission’s proposed Carbon Border Adjustment Mechanism is meant to replace free allowances distributed to industry under the existing EU ETS, but European steelmakers worry the transition will be a mess and leave them without protection from foreign competitors.

Kicking controversy into the long grass

But despite the agreement among ministers, EU countries are not ready yet to enter final negotiations on the law with the European Parliament, which has equal say on the matter.

Those talks will have to wait until progress is made on other topics, like the revision of the EU carbon market, export rebates to industry and the use of revenues coming from the EU’s new border tariff.

By doing this, the French EU presidency pushed the controversial topics into other laws currently under negotiation. That includes the discussion around free allowances – where companies receive permits allowing them to pollute for free – into the revision of the EU carbon market.

This may clash with how the European Parliament wants to negotiate CBAM.

Lawmakers are still drafting their position on the proposal, with over 1,300 amendments being discussed, but the MEP in charge of CBAM in Parliament has said free allowances need to be included in the discussion.

“There are many positive elements in the general approach. But there is one big elephant in the room: when and at which pace will CBAM replace the free allowances?” said Mohammed Chahim.

“I cannot make any deal on CBAM without clarity on the phase in of CBAM and phase-out of free allowances,” he warned.

Lawmaker drafts ‘complete overhaul’ of EU carbon border levy

The EU lawmaker in charge of negotiating Europe’s upcoming levy for carbon-intensive imports has recommended drastic changes, including a quicker rollout and adding more products to the scope of the draft legislation.

[Edited by Frédéric Simon]

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