Members' Research Service By / January 24, 2022

EU carbon border adjustment mechanism: Implications for climate and competitiveness [EU Legislation in Progress]

The European Union (EU) is a pioneer of large-scale carbon pricing, and the EU emissions trading system (ETS), established in 2005, is the world’s biggest carbon market.

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Written by Jana Titievskaia with Alina Dobreva (1st edition).

The EU has implemented the world’s largest carbon-pricing system, the emissions trading system (ETS). While pricing emissions can encourage industrial decarbonisation, it also risks carbon leakage, whereby EU companies move their production abroad. To date, the EU has mitigated carbon leakage through free allocations to certain industries, but with rising climate ambition and higher carbon prices, the Commission seeks to phase out free allocations. In parallel, a novel carbon border adjustment mechanism (CBAM) would be introduced, requiring EU importers, as of 2026, to purchase certificates equivalent to the weekly EU carbon price. During the transition period, starting in 2023, importers would be required to report emissions, with a system of monitoring, reporting and verification ensuring accurate reporting of carbon footprints. The CBAM would initially apply to imports in five emissions-intensive sectors deemed at greater risk of carbon leakage: cement, iron and steel, aluminium, fertilisers, and electricity. The CBAM charge would cover imports of these goods from all third countries, except those participating in the ETS or a linked mechanism.

The CBAM aims to contribute to the EU’s climate neutrality objectives, and encourage partner countries to decarbonise their production processes by levelling the playing field in carbon pricing between the EU and third-country producers; less developed countries could be supported in their climate transitions. Following publication of the Commission proposal on the CBAM in July 2020, Parliament referred the file to the Environment Committee.

Versions

Proposal for a regulation of the European Parliament and the Council establishing a carbon border adjustment mechanism
Committee responsible:Environment, Public Health and Food Safety (ENVI)COM(2021) 564
14.7.2021
Rapporteur:Mohammed Chahim (S&D, Netherlands)2021/0214(COD)
Shadow rapporteurs:Adam Jarubas (EPP, Poland)
Nicolae Ştefănuță (Renew, Romania)
Yannick Jadot (Greens/EFA, France)
Catherine Griset (ID, France)
Hermann Tertsch (ECR, Spain)
Malin Björk (The Left, Sweden)
Ordinary legislative procedure (COD)
(Parliament and Council on
equal footing – formerly ‘co-decision’)
Next steps expected: Vote on draft report in committee

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