EU carbon border levy will not be a quick fix, researchers say

The European Union plan to put a levy on certain emissions-intensive commodity imports may offer only limited protection against the relocation of production to countries with laxer climate policies.

The European Commission’s proposed Carbon Border Adjustment Mechanism, part of an economic overhaul to make Europe the world’s first climate-neutral continent, will also require extensive consultations with the World Trade Organization, according to researchers from the European University Institute.

CBAM “will not be the quick fix that many have been hoping for,” Jos Delbeke, Piotr Dombrowicki and Peter Vis said in a policy brief for the EUI on Friday. “It may materialize later this decade, rather than earlier as now hoped. CBAM needs a sustained diplomatic effort, and time for this should be allowed for.”

The mechanism would require importers of dirty products such as aluminum, fertilizers and electricity to buy special certificates to cover embedded emissions at a price linked to the EU carbon market. To guarantee compatibility with WTO rules, CBAM would be an alternative to existing carbon-leakage policies, such as the granting of free emission allowances.

The removal of the free allocation of pollution rights has been opposed by energy-intensive industries, including steel and aluminum. The European Aluminium lobby said on Friday it was concerned about the Commission’s plans and couldn’t see how CBAM could effectively reduce carbon leakage without free emissions permits.

The lack of support from industry may complicate the political negotiations that will follow once the EU regulatory arm puts forward its legislative proposal on July 14. It will need approval by member states and the European Parliament to be enacted. Before the talks begin, the EU will need to substantively engage with the WTO, Delbeke, Dombrowicki and Vis said.

They also argued that the protection CBAM might offer against relocation of production would be limited, while the lost value of free allocation for EU producers may be high.

“The best option would be to turn around the system of free allocation in favor of breakthrough, low-carbon technologies that enable a net-zero economy when deployed at sufficient scale, instead of continuing with the current benchmarks that rely upon ‘best-of-what-exists’ technologies,” they said.