EU to expand carbon levy on high-emission imports, tighten loopholes

The European Union will expand its carbon border levy - a fee charged on imports of high-emission goods - to cover car parts and washing machines, under European Commission proposals published on Wednesday.

 

The plans would also tighten loopholes that the Commission worries could allow foreign firms to dodge the fee, which is currently in a pilot phase and will start imposing costs from January.

 

The EU's Carbon Border Adjustment Mechanism - the world's first carbon border tariff - will impose fees on the CO2 emissions of imported goods including steel, aluminium, cement and fertilisers.

 

The policy, known as CBAM, is designed to shield European industries against cheaper imports from countries with weaker climate rules. But it has irritated trading partners including China, India and South Africa, which say it unfairly penalises their economies.

 

 

EU SEEKS TO AVERT WORKAROUNDS

 

Despite these objections, Brussels is doubling down on the carbon border levy.

 

The Commission proposed expanding the levy to cover downstream products that use a high share of steel and aluminium, including construction products and machinery, confirming draft EU legal proposals previously reported by Reuters.

 

The fee CBAM imposes on imports will be linked to the carbon price EU companies already pay under the bloc's carbon market.

 

"We're not asking anything more, but also not asking anything less, for those goods that come into the European Union," EU Climate Commissioner Wopke Hoekstra said.

 

Leon de Graaf, acting president of the "Business for CBAM Coalition" of companies and industry groups, welcomed the EU plans, which he said targeted "products that face the highest risk of carbon leakage" - the risk that manufacturers relocate abroad to avoid Europe's strict climate policies.

 

The EU also wants to clamp down on foreign companies if there is evidence they are under-reporting their emissions to dodge the levy. In this scenario, the EU could impose "default" emissions values on that country's products, resulting in a higher CBAM bill.

 

That aims to address EU concerns that foreign companies - in particular those in China- could strategically adjust by sending low-carbon products to Europe, while continuing to produce high-carbon goods for other markets. This would allow them to dodge the EU levy without making their overall production any greener.

 

EU countries and the European Parliament will negotiate the proposals, before they pass into law. While CBAM will charge importers for the emissions associated with their imports from 2026, companies will have until September 2027 to buy and surrender CBAM certificates to the EU to comply.

 

Since Brussels announced its carbon border levy in 2021, China, India and Brazil - while criticising the EU policy - have begun developing or expanding their own carbon pricing systems.

 

"They have changed behaviour. That is the success of CBAM," said Totis Kotsonis, a partner at law firm Pinsent Masons.

 

Brussels also proposed using 25% of the revenue from the scheme to compensate European manufacturers for higher costs associated with the carbon border levy. This support would only go to industries that invest in lower-carbon manufacturing.