EU to exempt 80% of importers from CBAM carbon tax

European Commissioner Wopke Hoekstra, in charge of climate policy and taxation, vowed to exempt over 80% of companies that are eligible for payments under CBAM. He explained they can be released from the administrative burden of the carbon import levy because the remaining ones account for 97% of greenhouse gas emissions.

Within its efforts to streamline administrative obligations and cut costs for businesses, the European Union is about to reduce the Carbon Border Adjustment Mechanism (CBAM) drastically. More than 80% of companies will be exempted, European Commissioner for Climate, Net Zero and Clean Growth Wopke Hoekstra told the Financial Times.

Nevertheless, the remaining ones account for 97% of greenhouse gas emissions, according to a recent update. It is a way to make life much easier for a wide range of companies across the continent, according to Hoekstra, who is responsible for tax policy including the CBAM levy.

“It is common sense that if you happen to not be part of the scope, then there’s also little point in having you fill out a lot of paperwork,” he pointed out. Separately, the commissioner said to members of the European Parliament’s Subcommittee on Tax Matters that it would be “smart to leave that roughly 80%” of businesses “off the hook, in terms of the administrative work burden.”

Hoekstra opting for de minimis approach

Currently, 20,000 German and 200,000 EU companies are eligible for CBAM. Reporting obligations were rolled out in the fourth quarter of 2023. The EU scheduled the start of gradual introduction of payments for the beginning of next year.

The full tariffs would set in at the beginning of 2034. In the meantime, the European Commission would phase out free EUA carbon allowances. It allocates them to domestic energy-intensive industries within the EU Emissions Trading System or EU ETS.

Most of the CBAM costs would spill over to companies in third countries, like the Western Balkans and Turkey, that export the designated goods and electricity to the EU

Hoekstra indicated already in mid-January that CBAM’s design would be significantly simplified, revealing that the EU’s most senior executive body may apply a de minimis rule.

Domestic companies face bureaucratic complications and a rise in prices of designated goods and electricity. However, exporters to the EU from third countries like the Western Balkans and Turkey would bear most of the costs. They would make them much less competitive.

The commodities in CBAM are cement, iron and steel, aluminum, fertilizers and hydrogen.

In addition, the European People’s Party (EPP) has called for a two-year delay and review of the carbon border fee and other climate regulations.

Relief for Western Balkans, but also for unprepared EU importers

The administration in Brussels adopted CBAM to protect its economy from imports from countries with less stringent or no carbon pricing. The regulations for the originally envisaged system aren’t even complete as the EU has been looking to expand it along the way.

Namely, the scheme was supposed to cover indirect emissions and downstream, manufactured products.

The Western Balkans and the rest of the Energy Community would welcome a two-year delay. They are way behind on carbon pricing and fulfilling the conditions for exemptions for electricity. But EU importers and foreign producers alike are still struggling to meet the legal requirements – particularly for reporting.

Calls within the 27-member trade bloc to ease climate restrictions have intensified as United States President Donald Trump is reversing his country’s decarbonization policy.