CBAM

European producers anxiously await CBAM details in ‘Fit For 55’ plan

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European industrial producers are anxiously awaiting the details of the European Commission’s Carbon Border Adjustment Mechanism (CBAM), part of the “Fit For 55” climate-change package of measures being presented today, which could greatly influence their energy costs.

Whether the introduction of the CBAM system – designed to introduce transboundary taxes on non-EU countries regarded as making a lesser effort, than the EU, to combat climate change – will be combined with a continuation of free carbon emission rights for certain industrial categories, or spell their end, is a crucial detail for producers active in sectors such as aluminium, cement and steel.

The latter scenario would prompt a sharp increase in energy costs for many energy-intensive producers, and could lead to further closures of industrial plants in Europe.

Latest reports suggest free carbon rights for selected industrial categories, as a cost-offsetting measure, will be maintained until at least 2025 or 2026.

The termination of the carbon cost-offsetting measure would require EU industrial producers to cover emission right costs for their entire production, in other words, sales within the EU and exports beyond, a dreaded prospect that would devastate European industry exports.

In the aluminium sector, for example, the termination of carbon emission cost offsetting measures would result in a 60 percent increase for every ton produced, making business beyond the EU impossible.

EU ‘Fit For 55’ climate package to bring about many changes

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To be presented today by the European Commission, the EU’s upcoming “Fit For 55” package of climate-change measures, setting stricter and more ambitious objectives for a 55 percent carbon emission reduction by 2030, compared to 1990 levels, will bring about a series of revisions.

These will include changes to the Emissions Trading System (ETS) and fuel taxation, as well as the introduction of new taxes and a Carbon Border Adjustment Mechanism (CBAM), promising transboundary taxes on non-EU countries regarded as making a lesser effort, than the EU, to combat climate change.

It still remains unclear if consumers or polluters, or both, will cover the cost of the “Fit For 55” measures.

Heating and transportation costs are expected to rise considerably over the next few years, according to a Euractiv report.

The package’s draft proposes an expansion of the ETS into the heating sector, for buildings, as well as into transportation, as a disincentive restricting high-polluting practices, including use of diesel.

The CBAM is expected to be launched on a three-year trial basis, beginning in 2023, before it is officially implemented in 2026.

Brussels green taxes, CBAM to prompt energy market changes

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Tax incentives for eco-friendly energy technologies and disincentives for polluting energy sources such as carbon and petroleum products, feature in the European Commission’s imminent package of eco-related taxes, while, for trade relations with non-EU countries, a Carbon Border Adjustment Mechanism will include penalties for a series of imports, including electricity.

The package of tax incentives, to be announced on July 14, will prompt major changes in Europe’s energy market, hastening developments towards a greener economy. Without a doubt, reaction by unhappy players can be expected.

Lignite will become an even more costly energy source as a result of the measures. Gasoline, other auto fuels and heating fuels may be spared of extra levies as existing Greek fuel tax rates are already among Europe’s highest, well over the EU average.

Implementation of the tax measures may take until 2023 as European Parliament and the EU-27’s national parliaments will all need to ratify the package before it can be introduced.

The arrival of these tax measures is expected to immediately lift carbon emission right prices to even higher levels. Already soaring, they exceeded 53 euros per ton yesterday, and, according to analysts, could end up reaching as high as 100 euros per ton, as was noted by power utility PPC’s chief executive Giorgos Stassis, at yesterday’s Delphi Economic Forum.

Beyond the EU borders, the European Commission will introduce a Carbon Border Adjustment Mechanism, to apply for the EU’s relations with non-EU members. This mechanism could spark political tension, even trade wars.

It will aim to protect European industry from unwanted competition in sectors such as the energy, steel, aluminium, cement and fertilizer industries by increasing the cost of imports from non-EU areas and countries without CO2 right markets, such as the west Balkans, Turkey, India and China.

The CBAM is also expected to be introduced in 2023.

EU lawmakers vote in favor of carbon levy on certain imports

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EU lawmakers have adopted a resolution for a carbon levy on certain imports from less climate-ambitious countries, with 444 votes in favor, 70 against and 181 abstentions.

Through the adoption of a Carbon Border Adjustment Mechanism (CBAM), to be implemented in 2023, the aim will be to create a global level playing field and prevent carbon leakage, which could create competitive disadvantages for European industrial producers.

The resolution underlines that the EU’s ambitious climate change targets should not lead to carbon leakage as global climate change efforts will not yield results if European production simply relocates to non-European countries with less ambitious emission standards, European Parliament announced in a statement.

European lawmakers, therefore, are in favor of a carbon tax on goods from non-EU countries that have not set ambitious targets for tackling climate change, as the EU has done with its ETS emissions trading system.

Besides creating a level playing field worldwide, the resolution should also serve as an incentive for both European and non-European industries to accelerate decarbonization procedures in line with the Paris Climate Agreement objectives.