On Wednesday, the European Parliament approved its position in the resolution on the creation of the world's first Frontier Carbon Adjustment Mechanism (CBAM), with 450 votes in favor, 115 against and 55 abstentions. The plenary debate on CBAM took place on June 7.
The European Parliament agreed on the need for CBAM to reduce global carbon emissions by incentivizing non-EU countries to reduce their emissions and prevent the risk of carbon leakage, i.e. moving production outside the EU to countries with milder climate policies. However, MEPs are proposing a number of changes to boost climate ambitions.
Expanding the scope of CBAM
In addition to the commodities proposed by the Commission (iron and steel, refined petroleum products, cement, basic organic chemicals and fertilizers), Parliament wants CBAM to also cover organic chemicals, plastics, hydrogen and ammonia. To ensure smooth application, organic chemicals and polymers are subject to an assessment by the Commission of their technical characteristics. To better reflect the costs of CO2 emissions for European industry, MEPs also want to extend the CBAM to indirect emissions from electricity used by producers.
Phased implementation of CBAM and elimination of free allowances in the Emissions Trading Scheme (ETS)
CBAM will apply from 1 January 2023 with a transitional period until the end of 2026 and the European Parliament believes that it should be fully implemented for the above sectors of the EU Emissions Trading Scheme (ETS) until 2032, three years earlier than proposed by the Commission. Until 2032, exporters should receive free allocations - 100% in the period 2023-2026, 93% in 2027, 84% in 2028, 69% in 2029, 50% in 2030 and 25% in 2031.
To avoid double protection, any free incentives given to EU industries under the ETS to overcome the risk of carbon leakage in the absence of fair competition should be completely phased out before 2032, when CBAM is fully operational for protected industries.
Furthermore, Parliament requests that the most efficient EU installations have an export adjustment mechanism to receive free ETS allocations for emissions related to the export of CBAM-regulated goods to non-EU countries that do not have ETS-like carbon pricing mechanisms . By December 31, 2025, the Commission will submit a report with a detailed assessment of the impact of ETS and CBAM on the production in the EU of goods covered by CBAM and exported outside the EU, on the development of global emissions and on the compatibility of export derogations with WTO principles.
The European Parliament emphasizes that coherence between CBAM and ETS is essential to respect for the principles of the World Trade Organization and that CBAM should not be misused as a tool to increase protectionism.
The need for a centralized EU body CBAM
Instead of having 27 competent authorities, Parliament believes that there should be one centralized CBAM body that would be more efficient, transparent and cost effective. It will also help fight importers' forum shopping practices.
The European Parliament wants the proceeds from the sale of CBAM certificates to go to the EU budget. The MEPs add that the EU should provide financial support at least equivalent to the financial value of the proceeds generated from the sale of CBAM certificates to support the efforts of the least developed countries to decarbonize their manufacturing industries. This support would help achieve EU climate targets and international commitments such as the Paris Agreement.
CBAM is part of the Fit for 55 in 2030 package, which is the EU's plan to reduce greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels, in line with the European Climate Law.
About 27% of global CO2 emissions from fuel combustion now come from goods sold internationally, and while the EU has substantially reduced domestic greenhouse gas emissions, emissions from the production of goods imported into the EU are constantly increasing, exploding. thus the EU's efforts to reduce global emissions.