On 15 September, the European Parliament adopted a series of decisions that will make the Carbon Border Adjustment Mechanism (CBAM) stricter, whilst providing support for European exporters and consumers. The list of goods covered by the mechanism will be significantly expanded, whilst the loopholes that allowed products to be modified to avoid carbon duties will be narrowed.
According to reports from the European Parliament, 464 MEPs voted in favour of this decision, 50 voted against, and 159 abstained.
Expanding the list of products
The European Commission had previously proposed extending the scope of the CBAM to lower-tier products – those manufactured using materials that have already been ‘taxed’. This covers a considerable range of finished goods, primarily those made from steel and aluminium. In particular, these include wires, springs, fasteners and household items.
The European Parliament not only backed this proposal, but also expanded the list of additional goods and products.
However, the decision contains an important exception – for electricity generated by countries outside the EU. The CBAM does not apply to such electricity if it is used within the European Union to maintain grid stability.
Fewer opportunities to get round the rules
It will now be more difficult to avoid carbon duties due to changes made to a particular product. The European Parliament has lowered the threshold at which a modification is deemed an attempt to circumvent the Carbon Border Adjustment Mechanism (CBAM). However, this does not apply to standard business decisions aimed at reducing a company’s costs.
If manipulation is found to have taken place, the European Parliament wishes to authorise the European Commission to apply the country of origin’s baseline figures instead of the actual figures.
The European Commission had previously proposed creating a sort of safety net in the event of a market crisis – exempting certain goods from the CBAM. However, the European Parliament did not support these changes. Instead, it is proposed to introduce a mechanism for temporarily redirecting CBAM revenue from the relevant goods to the affected sectors.
Less developed countries will be able to submit simplified reports.
The option to take carbon credits into account in this package of measures was rejected. It is expected to be considered as part of the update to the EU ETS emissions trading system.
Fund for the Protection of Euro-Exporters
To protect European manufacturers in export markets, the European Parliament is proposing the use of a Temporary Decarbonisation Fund (TDF). This decision was supported by 433 MEPs, with 97 voting against and 146 abstaining.
Under the European Parliament’s proposal, the Fund will begin operating earlier – from 2027 rather than 2028, as proposed by the European Commission. Support for businesses will be provided until 2029.
Fertiliser producers and consumers who face additional carbon costs will be able to count on separate support from the fund. These changes were adopted because of the vital role fertilisers play in the Union’s food security.
"This compromise makes the CBAM stronger, fairer and more sustainable. We have closed important loopholes, strengthened enforcement measures against circumvention and extended the scope of the mechanism where it matters most. This is a balanced package that protects European industry as it decarbonises, whilst safeguarding the environmental integrity of the mechanism,” emphasised MEP Mohammed Shahim.
EcoPolitic previously reported that the CBAM had become a severe financial blow for Ukrainian producers. The EU had relied on calculations suggesting that the mechanism would have an impact on the Ukrainian economy of just 0.01 per cent by 2030; however, the actual figures turned out to be significantly higher. The Ministry of Economy stated that discussions were underway with the EU authorities to postpone the CBAM, but since May this year, no information has been available regarding the outcome of these negotiations.
At the same time, the business community has been calling for financial support for decarbonisation. European manufacturers have received billions of euros for environmental modernisation under their emissions trading scheme. Ukrainian businesses, however, do not have such support, particularly during a full-scale war.
