European Parliament approves CBAM report but fails to take firm stance on Free Allocation
The European Parliament has voted to approve an Own Initiative report on the Carbon Border Adjustment Mechanism (CBAM). However, parliamentarians have missed an opportunity in removing the call for the phase-out of free allocation from the final report. Despite the ENVI Committee’s carefully worded compromise on the phase-out of free allocation coinciding with the introduction of the CBAM, the EPP Group proposed amendments to remove this aspect of the report, which were approved by a narrow margin on Tuesday.
Authored by the ENVI Committee and led by Greens/EFA lawmaker Yannik Jadot, the report supports the introduction of a CBAM which is compatible with WTO rules and acts as an incentive for decarbonisation within the EU and internationally. The amendment proposed by the EPP removed mentions of a gradual phase-out of free allocation, even though to maintain free allocation alongside a CBAM would seriously damage the WTO-compatibility of the measure.
“The CBAM is not only incompatible with free allocation, but also a much better tool than current carbon leakage protection measures”, said Adrien Assous, Delegated Director of the think-tank Sandbag. “Free allocation may give industries the semblance of protection, but it also deters them from making the investments necessary to reach their oft-touted decarbonisation goals. The CBAM can protect against carbon leakage while allowing the EU ETS carbon price to become the decarbonisation incentive it was intended to be. The European Parliament has missed an opportunity here to present a new future to industry”.
Nevertheless, during the debate on the file on Monday, the EPP Group were insistent that free allocation could co-exist alongside a CBAM, echoing an industry argument that counterparts in the S&D, Greens/EFA and Left Group found difficult to reconcile with non-discrimination rules under the WTO.
Ciara Barry, Climate Policy Campaigner with Sandbag, remarked “the CBAM debate clearly demarcated the battle lines for the upcoming reform of the EU ETS. We see one side of the Parliament pushing for alternatives to the flawed free allocation system, and the other side digging in their heels to defend it. We also got a taste of the intense industry lobbying that will fight against the ambitious changes required in the EU ETS.”
The version of CBAM report approved today retained its call for the reform of the EU ETS to deliver meaningful carbon pricing that respects the polluter pays principle, with the alignment of the instrument with the EU’s 2030 and 2050 targets through changes to the LRF and a rebasing of the cap. Although the call for an end to free allocation was removed, the amended text still states that double compensation should be avoided – which, the Commission has hinted, will require that a transition away from free allocation is included in the CBAM proposal coming in June.
 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.
 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/
 Speaking during the Parliament debate on the CBAM, Commissioner Gentiloni remarked that existing rules on carbon leakage would need to be phased out and that there will be a transition away from free allocation with the introduction of the CBAM.
 Industry actors including Eurofer, CEFIC, Cembureau, AEGIS Europe and Fertilisers Europe have lobbied parliamentarians on the issue of free allocation and the CBAM.