EU should roll out CO2 border tax earlier, apply it to indirect emissions from electricity

The proposed carbon border tax should be broadened to organic chemicals, hydrogen and polymers, introduced a year earlier, from 2025, and applied to indirect emissions, such as those from the use of electricity, according to a draft report from the European Parliament.

The document prepared by member of European Parliament Mohammed Chahim is part of the legislative procedure for the adoption of the European Commission’s proposal for the carbon border adjustment mechanism (CBAM), published in July 2021. In the current phase, the lawmakers and European Union member states are negotiating on it.

The commission has proposed CBAM to apply to imports of cement, iron, steel, fertilizers, aluminium and electricity from countries outside of the EU that don’t have carbon pricing schemes. The proposal envisages the CO2 tax to be phased in from 2023 until 2026, and levied only on direct emissions of greenhouse gases.

Today we sent our draft report on the legislative proposal to establish a carbon border adjustment mechanism (#CBAM) to the shadow rapporteurs.

The Commission proposal is an excellent starting point, but I see room for improvement in several areas.

(1/10) pic.twitter.com/cmyr0qoOcz

— Mohammed Chahim (@MChahim) January 5, 2022

The climate ambition of the proposal must be higher

Mohammed Chahim, the rapporteur in the Committee on the Environment, Public Health and Food Safety of the European Parliament, firstly intends to broaden the scope of the proposal to cover organic chemicals, hydrogen and polymers, as well as indirect emissions in all sectors covered by CBAM.

The rapporteur considers it necessary to extend the levy to indirect emissions already at this stage, to heighten the climate ambition of the proposal, the report reads.

Transitional period to be shortened by a year, and full implementation by seven years

He also proposed an incremental and speedier phase-in of CBAM so that the system becomes an alternative to free allowances and fully operational from the beginning of 2029, not from 2036, and to shorten the transitional period by one year to end-2024.

The rapporteur suggests shortening the transitional period due to the climate emergency and the EU’s own 2030 objective, the report underlined.

The CBAM factor (to reduce free allowances) would start after the pilot phase, and shall be equal to 90% in 2025, 70% in 2026, 40% in 2027, and reach zero by the end of 2028, Chahim wrote on Twitter.

The EU will provide financial support for decarbonization in least developed countries

In the report, he stressed the intention to make CBAM an instrument that incentivizes cooperation rather than confrontation with the EU’s partners, notably with least developed countries (LDCs).

It should however be very clear that only trade partners with explicit carbon pricing policies in place can be exempt from CBAM while the EU needs to avoid CBAM affecting LDCs disproportionally, Chahim said.

He proposed to the EU to provide financial support to stimulate the decarbonization of the industry in LDCs.