Europe to Bolster Carbon Border Levy Criticized by US and China

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(Bloomberg) — The European Union plans to expand an incoming emissions charge on imported goods as part of efforts to strengthen a flagship climate policy that’s aimed at protecting the bloc’s industries during the green shift.

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The EU has pressed ahead with its Carbon Border Adjustment Mechanism — which covers six emissions-intensive sectors — despite criticism from trading partners from the US to China. On Wednesday, it plans to propose measures to extend the levy to some assembled goods such as cars and washing machines to help close loopholes, according to a draft seen by Bloomberg.

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The EU introduced CBAM to safeguard its industry during an ambitious shift to net zero by 2050 and prompt other parts of the world to make their output greener. The idea is that carbon-intensive sectors forced to comply with the bloc’s world-leading climate laws won’t face unfair competition from producers operating in nations with weaker rules. It comes amid concerns that Europe is deindustrializing under the strain of high energy prices and the green transition.

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“The overall objective of the legislative proposal is to strengthen the effectiveness of CBAM, thus reducing greenhouse gas emissions and fighting climate change globally,” the EU says in the draft proposal, which is still subject to change. “This proposal will extend the scope of CBAM to selected steel and aluminium-intensive downstream products.”

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As of January this year, dozens of carbon-trading systems were in force globally, covering almost a fifth of global emissions, according to a report by non-profit organization IETA. Under EU rules, the fee importers will need to pay could be at least partially waived if a carbon levy has already been paid in the country where the goods were produced.

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“The CBAM is deeply unpopular among major exporters to the EU, but it has already proven to be effective in pushing reticent countries toward building or expanding carbon-pricing efforts,” said Henry Lush, a carbon analyst at consultants Veyt.

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Phased-In Fee

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CBAM, which began in 2023 with a data-collection stage, will from January require importers to pay a gradually phased-in levy based on their emissions footprint. At the same time, free pollution permits that some companies receive under the EU Emissions Trading System will be progressively phased out.

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The rules are designed to help the EU ensure its own companies have a level playing field with global rivals on the path to net zero. European manufacturers and utilities are subject to ever-stricter pollution limits under the ETS, with benchmark EU carbon permits now trading at about €85 a ton.

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CBAM currently applies to emissions-intensive industries including fertilizers, aluminum, iron and steel.

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The bloc now plans to extend it to certain downstream sectors, according to the draft documents, to stop non-EU nations from exporting products made with those materials into the region. The system will be based on criteria related to trade intensity, while ensuring it remains manageable for imports with many component parts, Bloomberg reported earlier this year.