After overnight negotiations, the European Union reached a political agreement early Tuesday to impose a carbon tax on “polluted” goods imported from third countries, such as steel and cement.
It is noted that this would give the EU a powerful tool to protect its industry in the context of the green transition while helping to prevent pollution in other parts of the world.
In particular, negotiators from EU countries and the European Parliament reached an agreement at around 5 am in Brussels on the law to impose a carbon dioxide emission tax on imports of iron, steel, cement, fertilizer, aluminum, and electricity.
Companies that import these products into the EU will need to purchase certificates to cover their CO2 emissions. The system is designed to apply the same carbon dioxide cost to foreign firms and domestic EU industries, the latter of which are already required to buy permits from the EU carbon market when they pollute, said Mohamed Shahim, the EU’s chief negotiator. Parliament. These cross-border fees will be crucial to the EU’s efforts to combat climate change.
It would also apply to imported hydrogen, which was not included in the original EU proposal but which EU lawmakers pushed for in the negotiations.
The Details
Key details of the Carbon Limits Adjustment Mechanism (CBAM), including its launch date, will be finalized later this week in the EU’s carbon market reform negotiations.
The EU currently gives carbon dioxide-free permits to domestic industries to protect them from foreign competition but plans to phase out these free permits when cross-border carbon charges are introduced in stages to meet WTO rules. How quickly this addition happens will be determined in the coal market talks.
Brussels said countries could opt out if they had policies on climate change equivalent to those of the European Union and suggested the United States could avoid tariffs on that basis.
Mechanism
The Carbon Limits Adjustment Mechanism is part of the Climate Strategy, as a measure that will avoid risks of carbon leakage and support the EU’s growing ambition to mitigate climate change, while ensuring alignment with the World Trade Organization.
Under no circumstances will EU importers purchase carbon certificates that correspond to the carbon price that would have been paid if the products had been produced under EU carbon pricing rules. Conversely, where a third-country producer can prove that it has already paid a price for the carbon used to produce the imported goods in a third country, the corresponding cost can be fully deducted from the EU importer.
CBAM will help reduce the risk of carbon leakage by encouraging producers in third countries to adopt greener production processes.
International Concern
The EU’s plans have already caused a diplomatic uproar in China and India, and there are fears that Russia will not follow through, Bloomberg notes.
Also, the EU mechanism comes as tensions mount over the US government’s Inflation Reduction Act, the country’s $369 billion green package, which only subsidizes manufacturers. Americans are developing some clean technologies, including electric cars, which the European Union considers potentially infringing. of the rules of the World Trade Organization.
For its part, the EU argues that CBAM is in line with international trade rules as an environmental measure, intended to prevent the industry from shifting carbon emissions out of the bloc, as it imposes stricter climate measures on the industry.
