The European Parliament has adopted a resolution towards an EU carbon border adjustment mechanism (CBAM) that is compatible with the World Trade Organization (WTO) rules. The EU’s new carbon policy will be a subject of a proposal for regulation in June 2021 by The European Commission. It involves a price on imported goods from countries outside the EU with no ambitious climate change mitigation agenda.
The vote for the resolution in the European Parliament that happened on March 10, 2021 received 444 for, 70 against and 181 abstentions. The European Commission will present a legislative proposal on the CBAM in June 2021 and will lay out an agenda on how the revenue generated will finance part of the EU budget.
The main purpose of the CBAM is to deal with the so-called “carbon leakage” problem. Sometimes EU companies move their operations to countries with less ambitious climate change policies.
Their production abroad is not covered by the Emissions Trading Scheme that limits the amount of emissions emitted. That causes a carbon leakage in the ETS and prevents European companies from adhering to the 2050 net zero emissions plan.
The Resolution supports creating an incentive for European industries and EU trade partners to decarbonize their production. A carbon import tax for countries more tolerant towards carbon pollution is expected to support both EU and global climate efforts towards GHG neutrality.
The carbon border adjustment mechanism was included as part of the EU Green Deal that was adopted in December 2019. The timeline for CBAM calls for integration no later than 2023.
The options for CBAM are diverse and include but are not limited to a border tax, carbon added tax or surrender under the EU ETS allowances upon importation. Some important issues central to the mechanism will also need to be addressed like which countries and product sectors should be subject to the CBAM.
The Commission will also need to make sure the tax reflects most accurately the carbon content of the imports. It should be designed in a way not to enhance protectionism, unjustifiable discrimination or restrictions. It should solely be based on the climate objectives of the countries to avoid any discrimination practices.
Reaction Towards The Carbon Policy
The reaction from the world towards the EU’s carbon border adjustment mechanism has been negative so far. Chinese President Xi disapproved of CBAM and said: “Tackling climate change is a shared responsibility … and should not become a geopolitical bargaining chip or used to attack other countries (or impose) trade barriers.”
John Kerry, the US Special Presidential Envoy for Climate, claims that such a mechanism should be a “last resort”. He also appealed to the EU to postpone it until after the COP26 climate change conference in Glasgow in November.
CBAM is a carbon policy that proves the EU’s ambitious determination to reduce its carbon footprint. However, there are some diplomatic issues to be dealt with that include coordinating the climate change agenda with other nations. It is complementary to the ETS and ensures more rigorous adherence to the emissions caps regulations.