When the device will come into force and who will benefit from the revenue generated by the tax are the two main questions that remain unanswered.
Greening industrial imports by charging for the carbon emissions linked to their production: the EU is finalizing the terms of an unprecedented mechanism on Monday, which must also sign the end of the “rights to pollutefree programs allocated to European manufacturers. With the soaring price per ton of CO2the idea is to avoid a “ecological dumpingwhich would see manufacturers relocate their production outside of Europe, while encouraging the rest of the world to adopt European standards.
The popular name ofcarbon taxis misleading: it is not really a tax, but a “adjustmentat the borders (“CBAM” in English), consisting in applying to imports the criteria of the European carbon market, where EU manufacturers are required to buy “rights to pollute“. The importer must declare the emissions directly linked to the production process, and if these exceed the European standard, acquire a “emission certificate» at the cost of CO2 in the EU. If a carbon market exists in the exporting country, it will only pay the difference.
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Commission and States defend a gradual application of the mechanism over ten years from 2026. MEPs call for a gradual implementation between 2027 and 2032. Revenue collection could be entrusted to the States or to a new centralized European authority – another outstanding question. Here are several aspects of this system with global impact, at the heart of final talks between the European Parliament and the Member States.
Free allowances
The European Commission’s proposal, taken up by the States, targets imports in the five sectors considered to be the most polluting (steel, aluminium, cement, fertilizers, electricity). The European Parliament has called for the list to be extended (hydrogen, plastics, chemicals). According to Brussels, the inclusion of organic chemicals would prove extremely complex.
Currently, European manufacturers are allocated free allowances covering part of their emissions, to support their competitiveness against imports not subject to the same environmental criteria. The equivalent of 98.5 billion euros was thus distributed to them between 2013 and 2021, according to the NGO WWF. As the power of the “border adjustment“, the free allowances distributed to the sectors concerned will be phased out.
A crucial point: by treating imports and local production equally, Brussels considers that it is complying with the rules of the World Trade Organization (WTO) and countering the accusations of “protectionism“. But the schedule remains hotly debated. MEPs are calling for a very gradual abolition, allowing companies to still receive 50% free allowances in 2030, before their complete disappearance in 2032. States want to maintain them until 2035.
The question will only be settled at the end of the week in the context of other negotiations on the carbon market, warns Pascal Canfin, chairman of the Environment Committee at the European Parliament. Environmental NGOs are calling for these free quotas, as long as they exist, to be accompanied by drastic conditions in terms of green investments.
Export aid
Another controversial point: the Parliament wants European industrial sites, under certain conditions, to continue to receive free allowances for their production intended for exports to non-EU countries without comparable carbon pricing. States remain reluctant to do anything “export discount“. “We have no mechanism to ensure that a company that invests in decarbonizing, which is costly, does not find itself disadvantaged in the global market.“, argues Pascal Canfin.
“Without a viable alternative, European exports will suffer from competition“, while they are already suffering from energy costs, is alarmed by Aegis Europe, an alliance of around twenty industries (steel, fertilizer, etc.). According to her, such aid would be compatible with the rules of the WTO. This is refuted by Pascal Lamy, former director general of the WTO and head of the Jacques Delors Institute. “This is not compatible because the CBAM is not a tax, it is very different from a VAT on which we would grant exemptions to exporters. It would be very dangerous to risk litigation on this.“, he explained to AFP.
“Indirect” emissions
MEPs want to include emissions “indirect» generated by the electricity used for the production of imported products. An idea initially rejected by the Commission and the States which considered the tracing too complex. The expected revenues, which could exceed 14 billion euros annually, will feed the general EU budget, helping to repay the post-Covid recovery plan.
NGOs are calling for them to be reserved strictly for decarbonization and aid to affected developing countries. With the extension of European standards to the rest of the world, “the objective is nevertheless that this device no longer brings in any revenue as soon as possible“recalls Pascal Lamy.
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