The European Parliament supports placing a carbon levy on certain imported goods to stop companies moving outside the EU to avoid emissions standards, a practice known as carbon leakage.
EU lawmakers worry that the efforts to reduce carbon footprint under the European Green Deal and become sustainably resilient and climate neutral by 2050 could be undermined by more polluting sectors relocating production to countries with looser greenhouse gas emission standards.
To mitigate this, the EU will propose a Carbon Border Adjustment Mechanism (CBAM), which would apply a carbon levy on imports of certain goods from outside the EU. MEPs see carbon pricing as an essential complement to the EU’s existing emissions trading system (ETS) and adopted a resolution on a WTO-compatible EU carbon border adjustment mechanism last week.
“The Parliament’s objective is to fight against climate change without endangering our businesses due to unfair international competition due to the lack of climate action in certain countries,” commented French Parliament rapporteur Yannick Jadot.
“We must protect the EU against climate dumping while ensuring that our companies also make the necessary efforts to play their part in the fight against climate change,” he added.
MEPs stressed that the carbon border adjustment mechanism should be WTO-compatible and not be misused as a tool to enhance protectionism. They also added that the generated revenues should be used as part of a basket of own revenues to boost support for the objectives of the Green Deal under the EU budget.
The new mechanism should be part of a broader EU industrial strategy and cover all imports of products and commodities covered by the EU ETS. MEPs highlighted that already by 2023 the Carbon Border Adjustment Mechanism should cover the power sector and energy-intensive industrial sectors like cement, steel, aluminium, oil refinery, paper, glass, chemicals and fertilisers, which continue to receive substantial free allocations, and still represent 94 per cent of EU industrial emissions.
The Commission is expected to present a legislative proposal on the CBAM in the second quarter of 2021 as part of the European Green Deal as well as a proposal on how to include the revenue generated to finance part of the EU budget.
The planned EU carbon border adjustment mechanism has already met scepticism from the outside. In a recent survey published by the Konrad Adenauer Foundation stakeholders from Australia, China, India, Indonesia, Japan, Singapore, South Korea, and Thailand note that the EU should introduce the CBAM gradually with the ultimate goal of getting these countries’ carbon pricing to an equivalent level with the EU at which point their goods would no longer need to be charged.