- Phasing in CBAM from 2027 and ending free allowances in EU ETS by 2032
- Scope should be extended to include organic chemicals, plastics, hydrogen and ammonia as well as indirect emissions
- EU budget should support least developed countries through amounts equivalent to sums collected through CBAM
- Need for a centralised EU CBAM authority
MEPs call for a broader scope and faster implementation of the EU Carbon Border Adjustment Mechanism (CBAM) to raise global climate ambition.
On Wednesday, the European Parliament adopted its position on the regulation establishing the world’s first Carbon Border Adjustment Mechanism with 450 votes for, 115 against and 55 abstentions. A Plenary debate was held on CBAM on 7 June.
Parliament agrees on the need for a CBAM to reduce global carbon emissions by incentivising non-EU countries to reduce their emissions and to prevent the risk of carbon leakage, i.e. production being moved to outside the EU to countries with laxer climate policies. However, MEPs propose a number of changes to increase climate ambition.
Broadening the scope of CBAM
In addition to the products proposed by the Commission (iron and steel, refineries, cement, organic basic chemicals and fertilisers), Parliament wants CBAM to also cover organic chemicals, plastics, hydrogen and ammonia. To ensure a smooth implementation, organic chemicals and polymers shall be subject to a Commission assessment of their technical specificities. MEPs also want to extend CBAM to include indirect emissions, i.e. emissions deriving from the electricity used by manufacturers, to better reflect CO2 costs for European industry.
Phasing in CBAM and ending free allowances in ETS
The CBAM would apply from 1 January 2023 with a transitional period until the end of 2026 and Parliament believes it must be fully implemented for the above listed sectors of the EU Emissions Trading System (ETS) by 2032 - three years earlier than proposed by the Commission. Until 2032, exporters should receive free allocations - 100% in the period 2023-2026, 93% in 2027, 84% in 2028, 69% in 2029, 50% in 2030 and 25% in 2031.
To avoid double protection, any free allowances granted to EU industries in the ETS, to address the risk of carbon leakage in the absence of fair competition, should be fully phased out by 2032 when CBAM kicks in fully for the protected industries.
In addition, Parliament requests that the most efficient EU installations should have an export adjustment mechanism to receive free allocations in the EU ETS for the emissions linked to their export of products regulated by CBAM to non-EU countries without carbon pricing mechanisms similar to the EU ETS. By 31 December 2025, the Commission shall present a report with a detailed assessment of the effects of the EU ETS and CBAM on the EU production of products covered by CBAM and exported outside the EU, on the development of global emissions and on the WTO-compatibility of the export derogation.
Parliament stresses that coherence between the CBAM and the EU ETS is essential to respect the principles of the World Trade Organisation and that CBAM must not be misused as a tool to enhance protectionism.
Need for a centralised EU CBAM authority
Rather than having 27 competent authorities, Parliament believes there should be one centralised EU CBAM authority, which would be more efficient, transparent and cost effective. This would also help to combat forum shopping from importers.
Parliament wants the revenues generated by the sale of CBAM certificates to go to the EU budget. MEPs add that the EU must provide financial support, at least equivalent in financial value to the revenues generated by the sale of CBAM certificates, to support least developed countries' efforts to decarbonise their manufacturing industries. This support would help meet the EU’s climate objectives and international commitments, such the Paris Agreement.
After the vote, rapporteur Mohammed Chahim (S&D, NL), said: “Today is an historic day for EU climate legislation. Thanks to CBAM, the EU will finally have a tool to incentivise our global trading partners to decarbonise their manufacturing industries, as no matter where you pollute, you will now have to pay for it, if you want to export to the European market. CBAM will therefore significantly contribute to meeting EU and global climate targets.”
Parliament is now ready to start negotiations with member states.
Around 27% of global CO2 emissions from fuel combustion currently comes from internationally traded goods and, while the EU has substantially reduced its domestic GHG emissions, those coming from imports to the EU have been constantly increasing, thereby undermining the EU’s efforts to reduce its global GHG footprint.