Five industry bodies team up to call for changes to EU Carbon Border Adjustment Mechanism

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Five associations representing carbon-intensive industries in Europe have joined forces to demand changes to the scope of the European Union’s Carbon Border Adjustment Mechanism (CBAM).

Signed on Wednesday, January 25, one of the five signatories to the joint statement, the European steel association Eurofer, released the statement to the public domain on January 27. The other signatories were Cembureau for the cement industry, Eurometaux, European Aluminium and Fertilizers Europe.

Adopted by the European Commission on July 14, 2021, CBAM will eventually apply to EU imports of iron, steel and aluminium, along with cement, fertilizers and electricity.

The associations are calling on the EU authorities to make several changes to CBAM, along with an adjusted timeline for the introduction of this complex, untested mechanism.

The associations have asked that the current carbon leakage framework be maintained until 2030 before imposing the CBAM, to test the system and to smooth the impact on value chains and trade flows and ensure that EU industry focuses resources on investment.

According to the original proposal, CBAM will fully come into force at the start of 2026 with a transition period from 2023 to 2025. During this three-year period, EU authorities will test CBAM without imposing any duties to ensure that the system works smoothly and without disruption when it comes into force.

The associations propose that the testing period for CBAM starts once importers start paying fees. And they said the full implementation of CBAM and a phasing out of free allowances can begin only when requirements of tackling carbon leakage and the prevention of circumvention are fully met, export solutions are found and the impact on the supply chain are measured.

“It is of utmost importance to have some testing years where the CBAM fee applies, and the [EC] thoroughly evaluates [that it achieves] a level playing,” the associations said.

They also requested that the European authorities include a solution for EU exports, because non-EU producers do not have equivalent carbon-trading schemes in place and will therefore have a cost advantage, making them more competitive. As a result, the European producers could risk ending up with limited access to export markets.

“Losing access to third [country] markets would jeopardize not only these volumes but the entire competitiveness of [the EU] companies, [because] they would strive to achieve sufficient capacity utilization to secure their sustainable viability,” the associations said.

The third demand is to strengthen and extend anti-circumvention provisions.

This means that in order for CBAM to be effective in the equalization of carbon costs between EU and non-EU industries, it should include measures to prevent bypassing the CBAM fee by importers via resource shuffling, product manipulation, emissions data manipulation, cost absorption, transshipment or not actually paying the declared CO2 price in the home country.

“It is essential that first the [exporting entity] comes from a country or region with carbon pricing; second, that the reciprocal industry in that country is subject to carbon pricing; and third, [the original] producer costs are not offset - either partially or fully - by any kind of redistribution mechanism,” according to the statement.

The CBAM requirements for imported emissions need to be aligned with the EU Emissions Trading System (ETS) protocol, implying strict monitoring, verification, and reporting procedures for EU producers by independent experts or EC teams, the statement said.

The EU industry associations also propose the creation of a centralized CBAM authority to replace the current proposition whereby each EU member state appoints a competent authority to establish a national registry of authorized declarants. Once cleared by the competent authority, those authorized declarants would be the only legitimate importers of goods - although they would be able to import goods for other organizations.

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