MEPs want a more ambitious carbon levy on imported goods to stop companies moving outside the EU to avoid emissions standards, a practice known as carbon leakage, Society.
As European industry struggles to recover from the Covid-19 crisis and the impact of the war in Ukraine, the EU is trying to honour its climate commitments, whilst keeping jobs and production chains at home.
Around 27% of global CO2 emissions from fuel combustion come from internationally traded goods and emissions from EU imports have risen, undermining its climate efforts.
An EU carbon levy to prevent carbon leakage
EU efforts to reduce its carbon footprint under the European Green Deal and become sustainably resilient and climate neutral by 2050, could be undermined by less climate-ambitious countries. To mitigate this, the European Commission proposed a Carbon Border Adjustment Mechanism (CBAM) in July 2021 , which would apply a carbon levy on imports of certain goods from outside the EU.
This mechanism is also part of a series of laws being adjusted under the Fit for 55 in 2030 package to deliver on the European Climate Law, through a decrease of greenhouse gas emissions of at least 55% by 2030 compared to 1990 levels. How would a European carbon levy work?
- If products come from countries with less ambitious rules than the EU, the levy is applied, ensuring imports are not cheaper than the equivalent EU product.
Given the risk of more polluting sectors relocating production to countries with looser greenhouse gas emission constraints, carbon pricing is seen as an essential complement to the existing EU carbon allowances system, the EU’s emissions trading system (ETS). What is carbon leakage?
- Carbon leakage is the shifting of greenhouse gas emitting industries outside the EU to avoid tighter standards. As this simply moves the problem elsewhere, MEPs want to avoid the problem through this new carbon leakage instrument
Existing carbon pricing measures in the EU
Under the current emissions trading system (ETS), which provides financial incentives to cut emissions, power plants and industries need to hold a permit for each tonne of CO2 they produce. The price of those permits is driven by demand and supply. Due to the last economic crisis, demand for permits has dropped and so has their price, which is so low that it discourages companies from investing in green technologies. In order to solve this issue, the EU will reform ETS – as foreseen under the Fit for 55 package.
What the Parliament is asking for
In a report adopted by the environment committee on 17 May, MEPs call for the Carbon Border Adjustment Mechanism to be extended to more products, including aluminium, hydrogen and chemicals and to cover so-called indirect emissions from the electricity used in manufacturing. They also want the mechanism to be implemented faster, from 1 January 2023, with a two-year transitional period and extended to all sectors of the ETS by 2030.
By 2020, the Carbon Border Adjustment Mechanism should cover power and energy-intensive industrial sectors, which represent 94% of the EU’s industrial emissions and still receive substantial free allocations, according to MEPs. These free allowances should be phased out by 2030 when the mechanism should fully cover the protected industries.
In addition, at least the equivalent in financial value to the revenues generated by the mechanism, should be channelled to the least developed countries to help with the decarbonisation of their manufacturing industries.
The report also calls for a centralised EU authority for the Carbon Border Adjustment Mechanism, rather than one in each EU country.
MEPs will vote on the report during the plenary session on 6-9 June.
Find out more
- Check legislative progress
- Study: carbon emissions pricing
- World Bank: pricing carbon
- Fit for 55 package: Carbon Border Adjustment Mechanism (January 2022)
- EU Carbon Border Adjustment Mechanism: implications for climate and competitiveness (February 2022)
- Procedure file
- Initial draft report
- Climate change
- EU responses to climate change
- EU and the Paris agreement: towards climate neutrality
- EU Climate Law: MEPs confirm deal on climate neutrality by 2050
- Infographic: timeline of climate change negotiations
- Climate change: raise global ambitions to achieve strong outcome at COP26
- Europe’s one trillion climate finance plan
- Green deal for Europe: First reactions from MEPs
- Parliament supports European Green Deal and pushes for even higher ambitions
- The European Parliament declares climate emergency
- EU defines green investments to boost sustainable finance
- How to increase green investment in the EU
- Why is EU funding for regions important?
- EU environmental policy to 2030: a systemic change
- Green Deal: key to a climate-neutral and sustainable EU
- What is carbon neutrality and how can it be achieved by 2050?
- Mitigating climate change with the EU’s clean energy policy
- Reducing carbon emissions: EU targets and measures
- The EU Emissions Trading Scheme (ETS) and its reform in brief
- Cutting EU greenhouse gas emissions: national targets for 2030
- Climate change: using EU forests to offset carbon emissions
- Carbon leakage: prevent firms from avoiding emissions rules
- Reducing car emissions: new CO2 targets for cars and vans explained
- Just Transition Fund: help EU regions adapt to green economy
- Renewable hydrogen: what are the benefits for the EU?
- Climate change in Europe: facts and figures
- Greenhouse gas emissions by country and sector (infographic)
- Infographic: how climate change is affecting Europe
- Emissions from planes and ships: facts and figures (infographic)
- CO2 emissions from cars: facts and figures (infographics)
- EU progress towards 2020 climate change goals (infographic)
- Sustainable forestry: Parliament’s work to fight deforestation
- Endangered species in Europe: facts and figures (infographic)
- How to preserve biodiversity: EU policy (video)
- Creating a sustainable food system: the EU’s strategy