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Parliament Carbon Border Adjustment vote a welcome call for EU ETS reform

The European Commission’s plan for a Carbon Border Adjustment Mechanism cleared its first hurdle today as the ENVI Committee of the European Parliament passed an own initiative report broadly supportive of the mechanism. The report regards a Carbon Border Adjustment Mechanism (CBAM) as a means to spur decarbonisation both within the EU and internationally, provided that it is solely used as an environmental policy tool and not a discriminatory trade measure. 

The CBAM, which would expose importers to the same carbon costs as those faced by EU domestic producers, is deemed necessary in the context of the Paris Agreement goals and the European Green Deal, as the EU’s current climate policy does not regulate the CO2 impact of imported goods. 

The close links between the CBAM and the EU ETS were highlighted with calls for ambitious reforms to bring the EU ETS in line with the 2030 and 2050 targets. The report challenges current means of carbon leakage protection, such as free allocation, which has been poorly targeted and lead to windfall profits in the past. A hard-won compromise calls for a gradual yet rapid phase-out of free allocation to go hand-in-hand with the introduction of the CBAM. 

Adrien Assous, Sandbag’s Delegated Director, welcomed this aspect of the report, saying “With its call for EU ETS reform through the CBAM report, the European Parliament is already setting the stage for the upcoming ETS package, throwing down the gauntlet to its sister institutions by insisting on the polluter pays principle and a meaningful carbon price.”

MEPs pose several conditions to strengthen the CBAM and ensure its effectiveness as a climate policy tool. The CBAM should not be seen as a silver bullet and must be complemented by a range of other policies including product standards addressing the greenhouse gas footprint and resource use of products. Rebates for EU-based exporters should only be considered if they can demonstrate a positive impact on climate action and compatibility with the WTO rules. While the CBAM may generate income for the EU, revenue generation should not be a major aim of the mechanism and should allow for increased support for climate objectives, just transition and industrial decarbonisation.

Ciara Barry, EU Climate Policy Campaigner with Sandbag, said “The Parliament has delivered a strong stance on the CBAM, placing it within the context of a wider, ambitious climate policy. The report also raises many of the challenges of the CBAM, which the Commission will have to address in its proposal this summer.”

The report will be voted on by the European Parliament Plenary in March, while the European Commission is set to deliver a legislative proposal for the CBAM in June.

For more information please contact: Ciara Barry, EU Climate Policy Campaigner, Sandbag, ciara@sandbag.be, +32 486 94 97 17

[1] Sandbag is a non-profit climate change think tank which uses data analysis to build evidence-based climate policy. They have worked on carbon border adjustments for many years in the context of wider EU ETS policy.

[2] Sandbag’s position paper on the Carbon Border Adjustment Mechanism can be found here: https://sandbag.be/index.php/2020/10/28/carbon-border-adjustments-in-the-eu-who-what-when-why-and-how/

[3] The ENVI Committee voted to approve all Compromise Amendments on 4 February, with the final adoption to follow on 5 February. Details of the ENVI Committee vote on the INI report can be found here: https://emeeting.europarl.europa.eu/emeeting/committee/en/agenda/202102/ENVI