EU reaches settlement on “first of its variety” CO2 border tax

The EU aims to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels.

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Plans for the European Union’s carbon border adjustment mechanism took a significant step forward on Tuesday morning after a tentative agreement was reached between the Council of the EU and members of the European Parliament.

In a statement, Parliament said the CBAM levy would be introduced “to match the price of carbon paid for EU products operating under the EU Emissions Trading Scheme (ETS) and the price of imported goods”. .

According to the plans, companies importing into the EU must buy “CBAM certificates”. These will be used to offset the difference “between the carbon price paid in the producing country and the price of carbon allowances in the EU ETS,” the statement said.

The CBAM will cover a range of goods and sectors such as electricity, fertilisers, aluminium, cement, steel and iron. It has also expanded to include hydrogen and other products such as bolts and screws.

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“Only countries with the same climate ambitions as the EU will be able to export to the EU without buying CBAM allowances,” the statement said Tuesday, adding that the plans were designed to comply with World Trade Organization rules fully conform.

The new rules would “ensure that EU and world efforts to combat climate change are not undermined by shifting production out of the EU to countries with less ambitious policies.”

The European Parliament’s statement called the new bill “the first of its kind”. It is to apply from October 2023, with a built-in transition period.

In practice, the plan means countries that don’t stick to the EU’s climate targets would be forced to cut emissions if they wanted to export goods to the EU, or spend extra money on allowances.

“CBAM will be a crucial pillar of European climate policy,” said Mohammed Chahim, a member of the European Parliament. “It’s one of the few mechanisms we have to encourage our trading partners to decarbonize their manufacturing industries.”

In its own statement, the Council of the EU (government ministers from each EU country) said Tuesday’s deal still needs to be confirmed by the European Parliament and EU member states’ ambassadors, and then “to be approved by both institutions before it’s final.” .

The CBAM is an important part of the EU’s broader target of reducing greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels.

Plans for the mechanism have previously drawn the ire of major economies like China. The CBAM is also being formulated at a time when the EU has raised concerns about the United States’ anti-inflation law.