EU wants to limit CO2 border levy to basic goods

The industry is eagerly awaiting the plans for a CO2 border adjustment. A first draft has now been pierced. It is available to the FAZ.

A worker in ThyssenKrupps steel plant in Duisburg

Et is one of the central questions of the European Union’s climate package: How can the EU keep up with international competition if it keeps setting new and higher climate targets? By 2030 the EU wants to reduce emissions by 55 percent compared to 1990, by 2050 the “continent” should be climate neutral, ie only emit as much CO2 as can be removed from the atmosphere by technical or natural means.

This entails enormous costs for industry and power generators. After all, there are fewer and fewer CO2 emission rights available to them in the EU emissions trading system, which is driving up the price, which has recently risen sharply. If, for this reason, they can no longer keep up with international competition, in extreme cases this leads to production being simply relocated to other parts of the world – without helping the climate.

Commission President Ursula von der Leyen therefore announced the introduction of a CO2 border adjustment in autumn last year. Products from countries that are not as actively involved in climate protection as the EU should be subject to a tax when imported into the EU in order to create fair competitive conditions at least within the EU.

The Commission wants to limit itself to basic materials for the time being

The approach, which is only abbreviated to CBAM (CO2 border adjustment mechanism) in Brussels, is part of the Commission’s climate package announced for mid-July. The industry is waiting with great excitement. A first draft has now been pierced. The FAZ has the 24-page document. It emerges from this that the Commission intends to limit itself to a number of basic materials initially, building on emissions trading.

Specifically, only imports of cement, electricity, fertilizers and various iron, steel and aluminum goods are to be affected in the first phase. The mechanism should apply to all third countries except Iceland, Norway, Switzerland and Liechtenstein. The Commission reserves the right to amend the list of affected products. This also applies to the list of excluded third countries, provided they have introduced an emissions trading system based on the European model and also linked it to EU emissions trading.

The amount of the border tax should be based on the price that European companies have to pay on average for the auction of EU emission certificates. Companies from third countries can claim CO2 costs that they incur in their home country and then have to show fewer “CBAM rights”.

Calculation for processed products is considered hopeless

With this “narrow approach”, the European Commission is responding to the organizational challenges that would have posed a border adjustment for all goods. Calculating the share of CO2 costs for processed products is considered to be almost hopeless. Even so, the importers of the affected products are faced with comprehensive new reporting obligations. If they do not provide sufficient data, the Commission wants to estimate the CO2 costs.

The proposal does not clarify the question of how European companies should be placed on an equal footing with the competition in competition outside the EU. The proposal does not provide for any kind of bonus payment for exports from the EU. It also remains unclear how long the Commission will continue to allocate free emission rights to European industry.

In this way, the EU has so far ensured that the burden on industry does not become too high by international standards. The federal government urges that this be adhered to in any case. The steel industry argues that the free allocation is more crucial than a CO2 border tax in order to maintain competitiveness.

Is a border tax compatible with WTO rules at all?

This is only indirectly referred to in the CBAM draft. The border tax is supposed to fall as long as the domestic industry receives free emission rights. The European Commission originally wanted to end the free allocation of emission rights with the introduction of the border tax. Most recently, however, it had moved towards the federal government and signaled that the EU could allow the free allocation to expire over a period of several years.

The pierced draft evidently comes from an early phase of internal deliberations in the Commission. The basic orientation, i.e. the restriction to a few basic products and the links to emissions trading, is unlikely to change much. Like the other components of the “Fit for 55” climate package, the proposal must be accepted by the European Parliament and the EU Council of Ministers in order to enter into force. It will then have to be clarified later whether a European CO2 border tax is at all compatible with the rules of the World Trade Organization (WTO). According to experts, there are justified doubts about this.