After 10 grueling hours of late-night negotiations that lasted until 5 a.m. on Tuesday (December 13), the EU reached agreement on a border tariff for carbon-intensive goods, ending 20 years of talks.
“People believed that we would never succeed. That it was just a threat to countries to increase their climate program, yet we are there,” said S&D MEP Mohammed Chahim, parliament’s rapporteur on the dossier.
The Carbon Border Adjustment Mechanism (CBAM) is designed to protect EU industries against the risk of outsourcing production to regions with lower environmental standards, where the cost of compliance is weaker. The hope is that this will encourage countries outside the EU to follow suit.
“We can be really proud of the result. It sets a very good example and a strong message to the rest of the world. And I can’t imagine that other regions won’t follow a similar mechanism,” Chahim said. “I think that might be the best answer.”
CBAM will cover the production of steel, fertilizers, aluminum, cement, electricity and hydrogen. Parliament also wanted to include emissions caused by energy used in the production process, but this will now only be included ‘in certain circumstances’ and will be reviewed at a later date.
Most finished products like cars, food or plastics are also excluded for the time being.
“We need to start in a targeted and simple way,” said MEP Pascal Canfin, chairman of the environment committee. “There is no equivalent system. That’s why we need time to put it in place.”
The CBAM will start on October 1, 2023, when companies to which the system applies will have to start collecting data. The system will officially come into effect after a pilot period in 2026.
A review at the end of the pilot period will determine which end products will be added to the list. Specifically, the inclusion of organic chemicals and plastics will be discussed.
It is estimated that the current list covers between 55 and 60% of emissions.
Negotiators are now gearing up for a new round of negotiations this weekend which could prove even more contentious.
At the center of these discussions is the question of free allowances. The CBAM is a tax on goods entering Europe. But European companies are already paying a carbon price under its emissions trading system (ETS).
To protect big polluters against companies outside Europe, a system of free quotas has been integrated. With CBAM, these allowances will be phased out – but the burning issue is timing.
Industry lobby groups have lobbied to delay the phase-out, warning that without this additional support, CBAM will fail to stop companies from relocating to more environmentally lax countries outside the EU. .
Over the summer, Chahim had described lobbying to slow the elimination as “extreme”.
“Some want to have CBAM and keep free allowances. You can’t have your cake and eat it and have the icing on the cake,” he told reporters.
Parliament agreed this summer to phase out all free allowances by 2032. However, the Commission and member states prefer the free allowance system to be maintained until 2034.
Many analysts consider the coexistence of free quotas and a carbon border tax as a violation of World Trade Organization rules because it would no longer be considered a climate measure but a tool to protect national industries.
“If national companies don’t pay for their emissions, there’s no way to apply for CBAM at the border,” said Geneviève Pons, a former senior EU official and current director of Brussels think tank Europe Jacques Delors.
Debates between parliament and member states will begin on Friday and are expected to last until Saturday or Sunday.