Lawmaker drafts ‘complete overhaul’ of EU carbon border levy

Left-wing lawmaker Mohammed Chahim has suggested drastic changes to the proposed carbon border levy and greatly increased the ambition of the legislation [EP]

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.

In July last year, the European Commission proposed a carbon border adjustment mechanism (CBAM) to put a price on carbon-intensive imports. The proposal is aimed at protecting EU businesses from unfair competition and prevent so-called carbon leakage, where companies relocate to countries where it is cheaper to pollute.

The proposal is now in the hands of the European Parliament and EU member states, who will need to agree a common text before the levy becomes a reality.

The lawmaker in charge of Parliament negotiations, Mohammed Chahim from the left-wing Socialists and Democrats (S&D) group, has pulled no punches in suggesting improvements to the Commission’s proposal in a draft report seen by EURACTIV.

“[Chahim’s report] is a complete overhaul, making substantial and important changes to the initial text,” according to Pierre Leturcq, senior policy analyst at the Institute for European Environmental Policy (IEEP), a think-tank.

One amendment tabled by Chahim is to expand the levy’s scope. Under the EU executive’s proposal, iron and steel, cement, fertiliser, aluminium and electricity generation would be covered by CBAM.

Chahim wants to expand that list to include organic chemicals, hydrogen and polymers.

“These products have the right characteristics to be covered by CBAM, and technical complexities can be overcome,” Chahim wrote on Twitter.

His report also takes aim at indirect emissions by including these in the calculation of the carbon intensity of imported products. That is something the European Commission only wanted to look at in future revisions of the legislation.

“Indirect emissions, such as emissions from electricity, should also be covered by CBAM after the pilot phase. This is extremely important to heighten the climate ambition of this proposal,” said Chahim.

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Free allocations gone by 2028

Alongside this, Chahim calls for the levy to come into force earlier than the European Commission suggested. His draft sees the trial period shortened by a year and the levy fully implemented by the beginning of 2025 instead of 2026.

His report also includes changes to what Leturq calls “the most divisive aspects” of CBAM, demanding financial support for the least developed countries to help them decarbonise and calling for a quicker phase-out of free allocations.

These free pollution permits are currently granted under the emissions trading scheme (ETS) to carbon-intensive industries as a way to prevent carbon leakage. But they have been criticised for undermining Europe’s climate ambition, including by the EU’s own watchdog, the EU Court of Auditors.

To tackle this, Chahim wants to scrap free allowances by 2028 – far earlier than the Commission’s proposal which would see them phased out in the mid-2030s. Under Chahim’s amendments, 100% of free allocations would be in place during the trial period. This would drop to 90% in 2025, 70% in 2026, 40% in 2027 and reach 0% by 31 December 2028.

The proposal to speed up the phase-out of free allocation is welcomed by environmental organisations.

“We can’t afford another decade or another decade and a half discussing whether carbon leakage is really an issue or not. It’s now high time – it’s even overtime – that we get pollution down in those sectors,” Sam van der Plas from Carbon Market Watch told EURACTIV.

However, a swift transition away from free allocations is unlikely to go down well with the industries that have benefited from them.

The proposal is “unbalanced when it comes to the timing and feasibility for European business to switch from a tried and tested mode of carbon leakage protection, to a wholly unpredictable one,” said Alexandre Affre, deputy director general at BusinessEurope, the EU’s main employer organisation.

“The proposed timeline for the phase-out of free allocation, the inclusion of indirect emissions and the shortening of the introductory period would be rushed and lacks any form of assessment in their effects on European companies,” he told EURACTIV.

EU industry shuns carbon border levy, calls for export rebates

European industries covered by the EU’s future carbon border adjustment mechanism (CBAM) have expressed doubts about the proposal, tabled last week. In addition to border measures, they are calling for an export rebate scheme to help green EU products compete on global markets.

‘CBAM’ authority

The draft also reimagines the system by which the levy will be implemented. Under the European Commission’s proposal, each EU country would be responsible for dealing with the charge on imports.

Chahim, however, wants to centralise this and create an EU-level “CBAM authority” to enforce the levy. This would avoid companies playing the system by introducing their products to the EU’s internal market through countries with the lowest capacity to monitor imports.

The CBAM authority “will offer economies of scale, and would help avoid ‘forum shopping’ because of discrepancies between member states,” Chahim explained.

Unlike the other amendments, this idea is welcomed by BusinessEurope, who told EURACTIV that “the rapporteur is right to address many of the administrative issues around the measure, such as the need for [a] unified CBAM authority”.

The report will now be debated by lawmakers to find a common position before Chahim leads the Parliament’s delegation in final talks with EU countries and the European Commission.

Chahim has chosen an ambitious starting point, possibly in the hope of leaving himself bargaining chips further down the line. But his report’s ambitious stance is likely to draw opposition from industry and could lose support from some areas of the European Parliament and certain EU countries.

> Read Chahim’s full draft CBAM report below or download here.

CBAM Informal draft

[Edited by Frédéric Simon]

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