Doubts persist on suitability of EU CBAM

The European Commission's proposals for a carbon border adjustment mechanism (CBAM) may not be the most effective way of preventing emissions, and divisions remain on how the measure should be implemented, delegates at a conference this week heard.

Speaking at a conference organised by the International Emissions Trading Association, research lead at the Cambridge Institute for Sustainability Leadership Sanna Markkanen said it is difficult to see how the CBAM could be implemented quickly enough to make the emissions cuts required, questioning whether there might be other more effective tools that could be implemented quicker.

Markkanen agreed with Cillian O'Donoghue of European non-ferrous association Eurometaux that the mechanism should be tested before free allocations of EU emissions trading system (ETS) allowances to industry are phased out.

And both called for anti-circumvention measures to be strengthened, to ensure that countries do not simply export the already "green" section of their products to the EU and sell the others elsewhere, leading to no material reduction in emissions.

The scope of the mechanism should to be extended to avoid market distortions, Markkanen said. Eurometaux wants a number of finished aluminium products to be added to the scope, which should also extend as far down the value chain as possible for any additional metals.

But indirect emissions should be excluded from the CBAM until 2030, O'Donoghue said, by which point the decarbonisation of the power sector would reduce related costs for producers.

CBAM "makes no sense" unless a solution to the problem of exports is found, O'Donoghue added, saying that maintaining free EU ETS allowances until 2030 would be the easiest workaround until then.

Producers could be allowed to keep their free allocations for the percentage of products they export, or be paid back at the end of the year, O'Donoghue suggested. If exports are integrated in both directions on the border it can be compatible with World Trade Organisation rules, he said.

But head of unit for the commission's directorate-general for taxation and customs union Vicente Hurtado Roa said there were doubts as to what a solution for exports would look like, adding that it is an ongoing discussion.

France, which will take over the presidency of the EU Council for the first half of next year, wishes to make enough progress to be in a position to launch trilogue discussions between the European Parliament, the commission and the EU Council from July, Hurtado Roa said, with the aim of finalising discussions by the end of 2022.

But he warned that positions on the matter remain unclear, with some calling for a faster full implementation of the mechanism from 2025 and some for the scope to be expanded to more sectors and emissions from the same date.

The commission put forward its proposals for a CBAM in July. The mechanism is designed to impose a carbon price on certain goods imported to the EU, thereby tackling carbon leakage — when companies relocate to other jurisdictions to avoid carbon costs, or more carbon-intensive imports replace EU products. Under the commission's plans, the measure would be fully implemented in 2026 following a transitional phase over 2023-25.

Representatives from the commission and parliament indicated that they saw a softening of international opposition to the CBAM during their attendance of the UN Cop 26 climate conference last month.

By Victoria Hatherick