In order to discuss the issues arising from the design and implementation of a Carbon Border Adjustment Mechanism (CBAM), Jean-Yves Le Drian, Minister for Europe and Foreign Affairs, Barbara Pompili, Minister for the Ecological Transition, and Bruno Le Maire, Minister of the Economy, Finance and the Recovery, are organizing an international conference on 23 March 2021.
This online event will bring together academics, representatives of European Union institutions, experts and representatives of international organizations and civil society actors from third countries.
Addressing climate change and achieving the goals of the Paris Agreement require climate action to be stepped up massively worldwide. The European Union has set itself the goal of achieving carbon neutrality by 2050 and has decided to reduce its greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. These ambitious goals require policies to reduce greenhouse gas emissions, demanding adaptation efforts on the part of Europe’s companies and citizens.
Outside the EU, however, third countries do not all have such strong climate ambitions. This regulatory divergence amplifies the risk that European climate policies result in offshoring of the production of carbon-intensive goods outside the EU, and re-importation of these goods to the European single market. This is known as “carbon leakage”.
Given the increased emissions outside the EU that it generates, carbon leakage reduces the effectiveness of European emissions-reduction efforts and their political and social acceptability. This is particularly true in sectors that currently emit large quantities of greenhouse gases and are exposed to international competition, such as steel. Reducing carbon leakage is therefore an EU priority, as the phenomenon undermines international climate action.
The CBAM seeks to address carbon leakage in order to help the EU achieve its climate objectives. The aim is that goods imported into the EU should be covered by equivalent carbon pricing to that applicable to production of the same goods within the European Union, under the Emissions Trading System (see insert). The mechanism will improve the coherence of the EU’s climate policy.
The CBAM will help more effectively address carbon leakage than current arrangements (free emissions quotas, emissions trading schemes) which it will gradually replace. Without a CBAM, strengthening Europe’s climate ambitions could lead to a major increase in carbon leakage.
Following its December 2019 Communication on the European Green Deal, the European Commission will produce proposals in June 2021 to establish an EU Carbon Border Adjustment Mechanism (CBAM) by 2023. This mechanism, which should be fair and legitimate and have strictly environmental aims, will be designed for full compliance with the rules of the World Trade Organization (WTO) and the multilateral climate framework and to address global development challenges. It will be a priority of the French Presidency of the Council of the European Union in 2022.
Carbon markets, also known as emission trading systems, are regulatory instruments to help wholly or partially achieve politically-defined greenhouse gas emissions-reduction goals. In 2005, the EU established a carbon market to measure, control and reduce emissions from its industry and electricity generation. The carbon market is the cornerstone of European energy and climate policy.
Source: Ministry for the Ecological Transition
France has long supported the creation of a carbon border adjustment mechanism. In response to a European Commission consultation, it submitted proposals in April 2020 for non-discriminatory and fully WTO-compatible implementation of the mechanism to:
- Require those importing goods from outside the EU to acquire specific carbon quotas from a market mirroring the EU Emissions Trading System (EU ETS);
- Gradually replace the system of free allocation of ETS allowances following a transitional phase which would run until 2013;
- Initially select a limited number of pilot sectors, including the highest-emitting activities and those most exposed to the risk of carbon leakage, such as steel and cement;
- Take into account the climate policies of third States and their level of development in the design of the mechanism;
- Provide a solution, in the form of compensations, to the issue of exporting sectors, so as to limit carbon leakage on other markets.