Launch of EU carbon tariff can advance climate policy worldwide
Berlin (29 Sep. 2023). The environment and development organisation Germanwatch welcomes the launch of the pilot phase of the EU Carbon Border Adjustment Mechanism (CBAM) this Sunday (1 October) as a major milestone in European climate policy. Christoph Bals, Policy Director of Germanwatch, says: "With the introduction of the Carbon Border Adjustment Mechanism, the EU has achieved a coup: By levelling the international playing field for industrial companies, it enables high carbon prices in the EU Emissions Trading Scheme ETS and thus sends an important signal that it is serious about its industry’s transition to climate-neutrality. The CBAM also creates an incentive for EU's trading partner economies worldwide to speed up their transformation."
According to Germanwatch, the world's first border adjustment for CO2 emissions is a central building block of an ambitious EU climate policy, which enables a rapid phase-out of the free allocation of allowances in the ETS. This refers to the free distribution of a proportion of the permits legally required to cover industrial CO2 emissions. Only without the free allocation will companies receive a full carbon price signal as an incentive for necessary investments.
Free distribution of allowances must be phased out more quickly
Oldag Caspar, Head of German and European Climate Policy at Germanwatch, adds: "With this innovative instrument, the EU can be a climate pioneer. At the same time, it needs to further support the necessary industrial transformation with new initiatives. Industry’s progress towards climate neutrality is not yet proceeding at the required pace. What is needed is a faster phase-out of the free allocation of allowances by 2030 at the latest, so that all companies are exposed to a strong CO2 price signal. In return, the introduction of CBAM could be completed more swiftly, possibly in combination with more innovation support for export-oriented energy-intensive industries." According to the EU's plans, many companies are not to receive the full CO2 price signal of emissions trading until 2034 - only eleven years before Germany wants to be completely climate neutral.
"Furthermore, the EU should use the revenues generated from CBAM to support trading partner countries in the Global South in their green transition,” adds Caspar. “The EU’s new carbon tariff can be avoided by trading partners' establishing their own CO2 levy and using the resulting revenues for the transformation of own industries. However, without an offer of support from the EU there would be a risk that countries perceive the carbon tariff as a protectionist measure. This would be send entirely the wrong signal to the international community, especially before the World Climate Summit in Dubai."
In the pilot phase of the CBAM, which begins on Sunday, only reporting obligations will initially apply, allowing companies to set up the necessary systems for data collection and reporting. In 2026, the climate tariff will kick in for all importers of electricity, iron and steel (products), aluminium, cement, fertiliser and hydrogen.
