steel furnace

Carbon border levy will stop firms shirking EU climate obligations

The European Parliament is considering imposing a carbon levy on imported goods in an effort to prevent firms from leaving the continent to escape their climate change obligations.

The EU is concerned that efforts to reduce its carbon footprint under the European Green Deal, with the ultimate goal to become climate neutral by 2050, could be undermined by less climate-ambitious countries.

To mitigate this, the EU is proposing a 'Carbon Border Adjustment Mechanism' (CBAM), which would apply a carbon levy on imports of certain goods from outside the EU in order to avoid “carbon leakage” - the shifting of greenhouse gas-emitting industries to places outside the EU in order to avoid tighter standards.

If products come from countries with less ambitious rules than the EU, the levy would be applied, ensuring that imports are not cheaper than the equivalent EU product.

The plans have raised the ire of some of Europe’s largest industry groups, such as steel association Eurofer, chemicals association Cefic and cement association Cembureau, who have asked lawmakers to rethink the proposals.

The EU currently gives industry free CO2 permits to comply with the carbon market, which allow them to emit a certain amount of carbon for free. It wants to phase these out to put European and foreign firms on a level footing and to “avoid double protection for EU installations”.

A Eurofer spokesman said that keeping both measures “would not lead to double protection” because existing carbon leakage protections “are already partial and digressive”. Europe’s steel sector already faced carbon costs totalling €1.5bn (£1.3bn) in 2018, he said.

Yannick Jadot, the lead MEP on the new measures, said: “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.

“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.”

Under the current emissions trading system (ETS), which provides financial incentives to cut emissions, power plants and industries need to hold a permit for each tonne of CO2 they produce.

The price of those permits is driven by demand and supply. Due to the prevailing economic crisis, demand for permits has dropped and so has their price, which is now so low that it discourages companies from investing in green technologies. In order to solve this issue, the EU has said it will reform ETS.

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