The Green Brief: CBAM enters with a bang

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Here is an acronym people outside the Brussels bubble will soon have to get used to.

CBAM – short for carbon border adjustment mechanism – entered with a bang last week when a draft version of the EU’s new regulation was leaked to the press (see our article here).

The proposal, expected to be tabled on 14 July as part of a broader package of EU climate laws, will come as a symbol of Europe’s newly-found assertiveness on trade and will form a central part of its push for a green industrial policy aiming for net-zero emissions by 2050.

The principle is simple: imposing a CO2 charge on products entering the EU so that European industry can play on an equal footing with foreign manufacturers. The objective, according to the European Commission, is to avoid “carbon leakage” whereby industries relocate production or new factories abroad in search of lower production costs.

“If we want our companies to continue on their way to zero emissions, we must insist on fairness and a level playing field for them,” Commission President Ursula von der Leyen said in a keynote speech in March.

China’s dumped steel is clearly in the firing line and Bejing has already signalled “grave concern” about the proposal. Those concerns are shared at the highest level of government, with Chinese President Xi Jinping already raising the matter in calls with the French President Emmanuel Macron and German Chancellor Angela Merkel.

So what do we know?

First, the sectors concerned. According to the leaked draft, CBAM would apply to steel, iron, cement, fertilisers, aluminium and electricity.

Companies exporting to the EU would need to report annually on the amount of emissions embedded in their products and buy a corresponding amount of carbon certificates from a newly-created CBAM authority. Carbon costs paid at home would be deducted from the total costs of certificates, ensuring the system “adjusts” for the difference. In other words, it won’t be a tax.

What the leaked proposal doesn’t say though is how CBAM will fit in the wider picture of EU climate policy. For instance, it doesn’t say whether EU industry will continue receiving free carbon allowances under the EU Emissions Trading System, as they do today, which would be contrary to World Trade Organisation rules.

The European Parliament has already expressed its views on this, saying free allowances must continue. In fact, a phase-in and phase-out period can be envisaged where both systems co-exist, as explained by Pascal Canfin, the chair of the European Parliament’s environment committee.

Other question marks relate to whether developing countries will be exempted from the charge and whether the revenues collected will be thrown into the wider EU budget or whether they will be spent on green policies, in Europe or abroad.

All of these questions will matter crucially for deciding whether the charge will be compatible with WTO rules or not. However, none of them appear insurmountable.

For Europe, the stakes are too high. Without CBAM or something equivalent, the carbon price gap with foreign industries soon risks becoming intolerable. Indeed, the ton of CO2 already trades above €50 on the EU carbon market, at levels that are already causing concern in the industry.

CBAM is a cornerstone of the EU’s industrial strategy and green diplomacy. Without it, European industry will be crushed between rising carbon costs at home and environmental dumping from abroad. If Europe is serious about the green transition, it cannot let this happen.

– Frédéric Simon

 

This week’s top stories

 

News from the capitals

WARSAW. Europe’s largest coal power plant announces official closure date. Polish Energy Group (PGE), a state-owned public power company and the largest power producing company in Poland, has announced the dates it will be shutting down subsequent blocks of the coal power plant in Belchatow, Europe’s biggest coal-fired power plant. Read more.

ZAGREB | SARAJEVO. Croatian, BiH ministers discuss cooperation, nuclear waste storage. Croatian Economy and Sustainable Development Minister Tomislav Ćorić and BiH Foreign Trade Minister Staša Košarac on Tuesday held talks on cooperation in the energy sector and on plans to store low- and medium-level radioactive waste at Trgovska Gora. Read more.

PRAGUE | WARSAW. Czechia ready to withdraw lawsuit against Poland under certain conditions. Coal mining at the Turów mine can go ahead, but Poland must pay Czechia compensation of €40 million to €50 million and review the permitting processes under which Polish authorities prolonged the license for mining, according to a Czech proposal. Read more.

BELGRADE. Serbian government passes resolution to support energy chapter in EU accession talks. The Serbian government passed a resolution to support Serbia’s negotiating position for Chapter XV – Energy, ahead of the next EU-Serbia intergovernmental conference, the ministry of mining and energy reported on Monday. Read more.

BRATISLAVA. Slovak officials told Nord Stream 2 will not affect gas supply through Ukraine. Board Chairman of Russia’s state-run natural gas monopoly Gazprom, Alexei Miller, confirmed that Slovakia has a stable position in Gazprom’s strategic plans in the meeting at the 24th International Economic Forum (SPIEF) with Slovak Economy Minister Richard Sulík and Foreign Minister Ivan Korčok in St. Petersburg on Friday. Read more.

PRAGUE. Another Czech-Polish dispute. Czech environmental organisations are calling for an immediate halt to the construction of a lookout tower on the top of Králický Sněžník, a mountain located on the border between Czechia and Poland. They say the tower, which has been under construction since autumn 2020, breaches building permit rules and poses a threat to wildlife. Read more.

TALLINN | HELSINKI. Estonia becomes first Baltic country to ban fur farming. Estonia’s parliament has passed a ban on fur farming with 56 votes in favour and 19 against, ERR News reported. Read more.

 

News in brief

Energy and environment state aid review. The European Commission on 7 June launched a public consultation to gather views on the proposed revision of the bloc’s Energy and Environmental State aid guidelines.

This may sound dull and technical but it’s not. State aid rules define conditions under which national governments can subsidise companies investing in green energy or environmentally-friendly projects, a subject which can be ultra-sensitive for EU member states. Paris, for instance, has long complained that EU state aid rules are too restrictive and prevents France from supporting national “champions” capable of competing on a global scale against US or Chinese rivals. Smaller countries like Denmark, on the other hand, fear unrestricted public spending would tilt the playing field in favour of bigger EU member states with deep pockets. Others like Germany, meanwhile, say they are firmly opposed to the eligibility of nuclear power plants for state aid. 

Environmental groups are watching closely too. According to Friends of the Earth, the proposed new guidelines get rid of a dedicated category for supporting renewable energy projects, mixing it with other ‘low carbon’ technologies such as hydrogen and carbon capture and storage (CCS). This is raising alarm bells among environmentalists who say the new guidelines will undermine citizen-driven renewable energy projects. “There is a worrying omission of Renewable Energy Communities and this threatens to leave community projects without the support they need,” said Molly Walsh energy campaigner at FoE Europe. 

Energy communities were hailed as a game-changer in the EU’s latest electricity market reform, enshrining into EU law the unprecedented right of consumers to produce, sell and share their own electricity in newly-defined “citizen energy communities”. (Frédéric Simon | EURACTIV.com)

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Shipping ETS ‘fuels’ the fire in the Commission. The European Commission’s inter-service consultation over the measures for shipping included in the “Fit for 55” legislative package has resulted in a huge clash between DG Move and DG Clima, EURACTIV has learned. More.

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Negotiations start on access to justice. Negotiations between the European Commission, EU leaders and the European Parliament have started on updating the Aarhus Regulation, after the European Union was told it needed to improve its implementation of the Aarhus Convention, which gives access to justice for citizens and NGOs on environmental matters.

The European Parliament has supported increased ambition. The European Council has also adopted its position, but the NGO Climate Action Network criticised it for leaving crucial elements exempt, like state aid acts and acts with implementing measures at national level.

“In the trilogues, the Council must keep its focus on ending the EU’s embarrassing breach of international law by agreeing with the amendments proposed by the European Parliament and ensuring a proper revision of the Aarhus Regulation,” said Harriet Mackaill-Hill, the governance policy coordinator at Climate Action Network. The European Union has until October 2021 to fully comply with the Aarhus Convention. (Kira Taylor | EURACTIV.com)

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Don’t include us in carbon border levy, says aluminium industry. European Aluminium has come out against including aluminium being included in the first wave of the carbon border adjustment mechanism, saying it would not be enough to prevent carbon leakage.

A leaked proposal showed aluminium would be included, alongside cement, fertilisers, electricity, steel and iron. But the aluminium industry wants out. “We have repeatedly stated that we do not wish to be part of the measure, as we cannot see how it could effectively reduce carbon leakage in our sector, given the proposed removal of free allowances and indirect cost compensation,” said Gerd Götz, Director General of European Aluminium.

The carbon footprint of the primary production of aluminium is largely indirect emissions and, therefore, is dependent on the electricity source as to whether it is green or not. Because of this, compensation for the indirect cost would be needed alongside the measure to prevent carbon leakage, European Aluminium told EURACTIV.

They warn that, while it could incentivise third country producers to reduce their footprint, it is more likely to mean low-carbon products are sent to the EU while trading high-carbon products continues outside the EU. (Kira Taylor | EURACTIV.com)

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Romania has one more hurdle to jump to its coal phase out. Romania has announced that it will phase out coal by 2032, a move cautiously welcomed by campaigners, but the country has another hurdle to overcome in its energy supply: a state aid case around the company that provides almost all coal-fired electricity in the country.

It is currently under investigation by the European Commission, but the energy minister, Virgil Popescu, is hopeful it will get the green-light, allowing the transformation of CE Oltenia from an only-coal based producer to a multi-sourcing producer. The company will become “a producer that will use as little coal as possible, in a mix with green energy and natural gas,” said Popescu, adding that the government is also preparing a new concept that will envisage the use of a mix of hydrogen with natural gas for electricity generation countrywide.

However, there are concerns from green campaigners over replacing coal with natural gas. While it produces around half the CO2 emissions that coal does, it still has an impact on the environment. Coal should be replaced directly with renewable sources and not fossil gas projects, which are not compatible with environment policy targets, Bankwatch Romania wrote on its Facebook page on Thursday. (Kira Taylor and Bogdan Neagu | EURACTIV.com)

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Twitter bot launched to track fossil fuel lobbying. The NGO, Global Witness, has launched a Twitter bot to track meetings between the European Commission and the fossil fuel industry. Since the start of 2020, there have been 131 such meetings, with 50 including discussions around the Green Deal, according to the NGO, which says the fossil gas industry has spent approximately €300 million on lobbying the EU since 2010.

@EUGasDetector will automatically generate a tweet whenever a senior EU official announces a meeting with a gas lobbyist.

“This lobbying is how the gas industry shapes policy to their own interest and holds politicians back from the real climate action the world so desperately needs,” said Barnaby Pace, senior gas campaigner at Global Witness. “The science is overwhelmingly clear that we must phase out fossil gas – but this industry and its lobbyists are desperately pumping their messages into the halls of power.” Read more here. (Kira Taylor | EURACTIV.com)

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Commission approves German support for cogenerated electricity. The European Commission has approved state aid for prolonging and updating an existing German scheme that supports the production of electricity from new, modernised and retrofitted highly efficient cogeneration plants – except for coal and lignite-fired plants. “The German scheme will promote energy efficiency and contribute to further reductions in CO2 emissions, in line with the objectives of the European Green Deal,” said Executive Vice-President Margrethe Vestager, who is in charge of competition policy.

 

Opinions

 

Upcoming events

24 JUNE. Fit for purpose? The role of renewable fuels on the road to 2030 and beyond. The renewable energy directive is due to be revised again, only three years after its last revision in 2018, and is already causing ripples as people speculate about the role of bioenergy and how Europe can meet its new climate goals. Speakers to be confirmed. Programme and registration here. (Supported by ePURE)

25 JUNE. What will be the cost of including transport and buildings in the EU ETS? With Adam Guibourgé-Czetwertynski, Undersecretary of State in Poland and more speakers to be confirmed, explore the impact of the European Commission’s potential inclusion of buildings and transport in the emissions trading scheme. Programme and registration here. (Supported by the Polish Economic Institute)

25 JUNE. MEDIA PARTNERSHIP: The blue economy in the green transition – European contributions to sustainable ocean management. Join Portuguese Minister of Maritime Affairs, Ricardo Serrão Santos, and Norwegian State Secretary, Jens Frølich Holte, to discuss European policies and initiatives for a sustainable blue economy and how these initiatives contribute to the global efforts for sustainable ocean management. Programme and registration here. (Organised by Mission of Norway to the European Union)

 

On our radar

10 JUNE: Environment Council. Ministers are expected to adopt conclusions on the EU’s climate adaptation strategy, and debate new rules on waste batteries. Agenda here.

11 JUNE: Energy Council. Ministers will attempt to reach a “general approach” on the revision of the TEN-E regulation. They will also exchange views on the European Commission’s proposed hydrogen strategy and renovation wave. Agenda and further details here.

11-13 June: G7 summit. G7 leaders meet  in Carbis Bay, Cornwall, under the UK presidency. Among other subjects, they will discuss plans for a green and fair recovery.  

14 JULY: Fit for 55 package. The Commission is expected to table a huge package of green legislation in June, including a revision of the renewable energy directive, a revision of the emissions trading scheme and our first glimpse at a carbon border adjustment mechanism.

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