Our position paper on the Commission’s legislative proposal amending the CBAM proposes an opt-in solution to CBAM circumvention and complexity.
Our position on the Commission’s legislative proposal amending the CBAM
Enabling opt-in for systematic default values
To address this problem for products and countries where such risk exists, emissions reporting could be based on default values more systematically, i.e. attributing the same emission intensity to all products of the same type manufactured in a given country, based on the country average.
The CBAM will be more effective, if implemented in a cooperative way. To secure cooperation from third countries, the systematic use of default values could apply based on an opt-in basis (at country level) and rewarded by lower default values, reflective of country averages (with no mark-ups) rather than punitive ones.
Opting for systematic default values would provide multiple benefits to third countries:
- Reduced transaction costs: Not having to set up monitoring plans, trace information internally and externally along the supply chain, create monitoring reports and pay for third party verification would save time and resources.
- No verification risk: The identity and number of accredited verifiers is still uncertain, and accredited verifiers will likely struggle to meet the demand from importers in a tight schedule. In addition, the verification process is extended by the chain of precursors involved in each type of goods. Not requiring verification fully mitigates exposure to such a verification risk.
- No volume risk: The actual amount of emitted emissions is uncertain and can only be verified long after the goods are sold, and the transmission of this risk along value chains makes this exposure less manageable. Opting for systematic default values and not requiring verification mitigates such volume risk.
- Fairer competition: By reducing fixed costs and the level of default values, the systematic use of lower default values would affect importers of smaller quantities of goods less disproportionately than actual data, allowing for fairer competition between exporters of the same country.
- No data disclosure: By only using default values, no information on technology, production route, amounts, inputs and activity volumes would need to be shared with independent verifiers.
The systematic use of default values would also bring climate benefits. By better protecting against carbon leakage, it would enable the EU to steadily step up its climate ambition. Using default values that reflect country averages would create incentives for countries of origin to reduce their overall emissions rather than just reallocating them from EU imports to other markets. The CBAM regulation could be amended as shown in Annex 1 to enable this opt-in regime.
Enabling opt-in for systematic default values
Phasing out free allocation and phasing in of the CBAM in the EU will inevitably lead to a steady increase in the price of covered goods over the coming years, as EU importers look to pass on the cost of importing covered goods. It is therefore important to consider the impact of the CBAM on downstream goods not currently covered in the CBAM scope which may be impacted, including the agri-food industry which is downstream of fertilisers. Products including beef, rice, plant-based fibres, cereals, wheat, and vegetable oils have already been touted as potential candidates. While calculating the embedded emissions of these agri-food products will present challenges, the Commission should be proactive in carrying out such an assessment. This is especially relevant to consider in the context of the potential introduction for carbon pricing of emissions from agriculture in the EU, as the European Scientific Advisory Board on Climate Change (ESABCC) recently recommended.
Additionally, chemicals which are downstream of hydrogen and ammonia are currently outside the scope of the CBAM. As free allocation is phased out and the CBAM is phased in for hydrogen and ammonia, the cost of production in the EU will increase, presenting a risk of carbon leakage for downstream products which are not currently protected by the CBAM. The Commission should therefore look to include these downstream value chains as a matter of urgency, along with other key value chains, as we recently recommended.
Read our suggested changes to the CBAM regulation in our position paper.
Related publications
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